Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No.

155604 November 22, 2007

COLLEGE ASSURANCE PLAN and COMPREHENSIVE ANNUITY PLAN and PENSION CORPORATION,petitioners, vs. BELFRANLT DEVELOPMENT INC., respondent. DECISION AUSTRIA-MARTINEZ, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the February 28, 2002 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 63283, which modified the April 14, 1999 Decision2 of the Regional Trial Court (Branch 221), Quezon City (RTC) in Civil Case No. Q-95-23118. The antecedent facts are as summarized by the RTC. Belfranlt Development, Inc. (respondent) is the owner of Belfranlt Building in Angeles City, Pampanga. It leased to petitioners College Assurance Plan Phil., Inc. (CAP) and Comprehensive Annuity Plans and Pension Corporation (CAPP) several units on the second and third floors of the building. 3 On October 8, 1994, fire destroyed portions of the building, including the third floor units being occupied by petitioners. An October 20, 1994 field investigation report by an unnamed arson investigator assigned to the case disclosed: 0.5 Origin of Fire: Store room occupied by CAP, located at the 3rd floor of the bldg. 0.6 Cause of Fire: Accidental (overheated coffee percolator). 4 These findings are reiterated in the October 21, 1994 certification which the BFP City Fire Marshal, Insp. Teodoro D. del Rosario issued to petitioners as supporting document for the latter's insurance claim. 5 Citing the foregoing findings, respondent sent petitioners on November 3, 1994 a notice to vacate the leased premises to make way for repairs, and to pay reparation estimated at P1.5 million. On November 11, 1994, petitioners vacated the leased premises, including the units on the second floor,6 but they did not act on the demand for reparation. Respondent wrote petitioners another letter, reiterating its claim for reparation, this time estimated by professionals to be no less than P2 million.7 It also clarified that, as the leased units on the second floor were not affected by the fire, petitioners had no reason to vacate the same; hence, their lease on said units is deemed still subsisting, along with their obligation to pay for the rent. 8 1

In reply, petitioners explained that they could no longer re-occupy the units on the second floor of the building for they had already moved to a new location and entered into a binding contract with a new lessor. Petitioners also disclaimed liability for reparation, pointing out that the fire was a fortuitous event for which they could not be held responsible.9 After its third demand10 went unheeded, respondent filed with the RTC a complaint against petitioners for damages. The RTC rendered a Decision dated April 14, 1999, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [respondent] and against the herein defendants [petitioners]. Defendants are ordered to pay the plaintiff joint[sic] and severally the following amounts: 1) P2.2 Million Pesos cost of rehabilitation (repairs, replacements and renovations) of the Belfranlt building by way of Actual and Compensatory damages; 2) P14,000.00 per month of unpaid rentals on the third floor of the Belfranlt building for the period from October 1994 until the end of the two year lease contract on May 10, 1996 by way of Actual and Compensatory damages; 3) P18,000.00 per month of unpaid rentals on the second floor of the Belfanlt building for the period from October 1994 until the end of the two year lease contract on May 10, 1996 by way of Actual or Compensatory damages; 4) P8,400.00 per month as reimbursement of unpaid rentals on the other leased areas occupied by other tenants for the period from October 1994 until the time the vacated leased areas were occupied by new tenants; 5) P200,000.00 as moral damages; 6) P200,000.00 as exemplary damages; 7) P50,000.00 plus 20% of Actual damages awarded as reasonable Attorney's fees; and 8) Costs of suit. SO ORDERED.11 Petitioners appealed to the CA which, in its February 28, 2002 Decision, modified the RTC Decision, thus: WHEREFORE, the appealed decision is MODIFIED in that the award of (i) actual and compensatory damages in the amounts of P2.2 Million as cost of rehabilitation of Belfranlt Building and P8,400.00 per month as reimbursement of unpaid rentals on the areas leased by other tenants, (ii) moral damages, (iii) exemplary damages and (iv) attorney's fees is DELETED, while defendants-appellants are ordered to pay to plaintiff-appellee, jointly and severally, the amount of P500,000.00 as temperate damages. The appealed judgment is AFFIRMED in all other respects. SO ORDERED.12 2

Respondent did not appeal from the CA decision.13 Petitioners filed the present petition, questioning the CA decision on the following grounds: I The honorable Court of Appeals erred in not holding that the fire that partially burned respondent's building was a fortuitous event. II The honorable Court of Appeals erred in holding that petitioner failed to observe the due diligence of a good father of a family. III The honorable Court of Appeals erred in holding petitioners liable for certain actual damages despite plaintiffs' failure to prove the damage as alleged. IV The honorable Court of Appeals erred in holding petitioners liable for temperate damages. 14 The petition lacks merit. Article 1667 of the Civil Code, which provides: The lessee is responsible for the deterioration or loss of the thing leased, unless he proves that it took place without his fault. This burden of proof on the lessee does not apply when the destruction is due to earthquake, flood, storm or other natural calamity. creates the presumption that the lessee is liable for the deterioration or loss of a thing leased. To overcome such legal presumption, the lessee must prove that the deterioration or loss was due to a fortuitous event which took place without his fault or negligence.15 Article 1174 of the Civil Code defines a fortuitous event as that which could not be foreseen, or which, though foreseen, was inevitable. Whether an act of god 16 or an act of man,17 to constitute a fortuitous event, it must be shown that: a) the cause of the unforeseen and unexpected occurrence or of the failure of the obligor to comply with its obligations was independent of human will; b) it was impossible to foresee the event or, if it could have been foreseen, to avoid it; c) the occurrence rendered it impossible for the obligor to fulfill its obligations in a normal manner; and d) said obligor was free from any participation in the aggravation of the injury or loss.18 If the negligence or fault of the obligor coincided with the occurrence of the fortuitous event, and caused the loss or damage or the aggravation thereof, the fortuitous event cannot shield the obligor from liability for his negligence. 19 In the present case, it was fire that caused the damage to the units being occupied by petitioners. The legal presumption therefore is that petitioners were responsible for the damage. Petitioners insist, however, that they are exempt from liability for the fire was a fortuitous event that took place without their fault or negligence.20 3

The RTC saw differently, holding that the proximate cause of the fire was the fault and negligence of petitioners in using a coffee percolator in the office stockroom on the third floor of the building and in allowing the electrical device to overheat: Plaintiff has presented credible and preponderant evidence that the fire was not due to a fortuitous event but rather was due to an overheated coffee percolator found in the leased premises occupied by the defendants. The certification issued by the Bureau of Fire Protection Region 3 dated October 21, 1994 clearly indicated that the cause of the fire was an overheated coffee percolator. This documentary evidence is credible because it was issued by a government office which conducted an investigation of the cause and circumstances surrounding the fire of October 8, 1994. Under Section 4, Rule 131 of the Revised Rules of Court, there is a legal presumption that official duty has been regularly performed. The defendants have failed to present countervailing evidence to rebut or dispute this presumption. The defendants did not present any credible evidence to impute any wrongdoing or false motives on the part of Fire Department Officials and Arson investigators in the preparation and finalization of this certification. This Court is convinced that the Certification is genuine, authentic, valid and issued in the proper exercise and regular performance of the issuing authority's official duties. The written certification cannot be considered self-serving to the plaintiff because as clearly indicated on its face the same was issued not to the plaintiff but to the defendant's representative Mr. Jesus V. Roig for purposes of filing their insurance claim. This certification was issued by a government office upon the request of the defendant's authorized representative. The plaintiff also presented preponderant evidence that the fire was caused by an overheated coffee percolator when plaintiff submitted in evidence not only photographs of the remnants of a coffee percolator found in the burned premises but the object evidence itself. Defendants did not dispute the authenticity or veracity of these evidence. Defendants merely presented negative evidence in the form of denials that defendants maintained a coffee percolator in the premises testified to by employees of defendants who cannot be considered totally disinterested.21(Citations omitted) The CA concurred with the RTC and noted additional evidence of the negligence of petitioners: The records disclose that the metal base of a heating device which the lower court found to be the base of a coffee percolator, was retrieved from the stockroom where the fire originated. The metal base contains the inscription "CAUTION DO NOT OPERATE WHEN EMPTY", which is a warning against the use of such electrical device when empty and an indication that it is a waterheating appliance. Its being an instrument for preparing coffee is demonstrated by its retrieval from the stockroom, particularly beside broken drinking glasses, Nescafe bottle, metal dish rack and utensils. Appellants assert that it had an airpot not a coffee percolator - near the Administration Office on the third floor. For unexplained reasons, however, they did not present the airpot to disprove the existence of the coffee percolator. The fire did not raze the entire third floor and the objects therein. Even the stack of highly combustible paper on the third floor was not totally gutted by the fire. Consequently, it is not farfetched that the burnt airpot, if any, could have been recovered by appellants from the area where it was supposedly being kept. xxxx The defense that the fire was a fortuitous event is untenable. It is undisputed that the fire originated from appellants' stockroom located on the third floor leased premises. Said stockroom was under the control of appellants which, on that fateful day (a Saturday), conducted a seminar 4

in the training room which was adjoining the stockroom. Absent an explanation from appellants on the cause of the fire, the doctrine of res ipsa loquitur applies.22 Petitioners impugn both findings. They claim that the BFP field investigation report (Exh. "P-2") and the BFP certification (Exh. "P-3") are hearsay evidence because these were presented during the testimony of Fireman Gerardo Sitchon (Fireman Sitchon) of the Bureau of Fire Protection (BFP), Angeles City, who admitted to having no participation in the investigation of the fire incident or personal knowledge about said incident,23 making him incompetent to testify thereon. Petitioners argue that, with Exh. "P-2" and Exh. "P-3" and the testimony of Fireman Sitchon that are flawed, there is virtually no evidence left that the cause of the fire was an overheated coffee percolator. Petitioners insist that they own no such percolator.24 We find no cogent reason to disturb the finding of the RTC and CA. The finding that the negligence of petitioners was the proximate cause of the fire that destroyed portions of the leased units is a purely factual matter which we cannot pass upon, 25 lest we overstep the restriction that review by certiorari under Rule 45 be limited to errors of law only.26 Moreover, the established rule is that the factual findings of the CA affirming those of the RTC are conclusive and binding on us.27 We are not wont to review them, save under exceptional circumstances as: (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the CA is based on misapprehension of facts; (5) when the CA, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (6) when the findings of fact are conclusions without citation of specific evidence on which they are based; (7) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (8) when the findings of fact of the CA are premised on the absence of evidence and are contradicted by the evidence on record. 28 The exceptions do not obtain in the present case. In fact, the findings of the RTC and CA are fully supported by the evidence. Contrary to petitioners' claim, Fireman Sitchon is competent to identify and testify on Exh. "P-2" and Exh. "P-3" because, although he did not sign said documents, he personally prepared the same. 29 What Fireman Sitchon did not prepare were the documents which his investigation witnesses presented.30 However, Fireman Sitchon emphasized that he interviewed said investigation witnesses namely, Ronald Estanislao, the security guard on duty at the time of fire; and Dr. Zenaida Arcilla, manager of CAPP, before he prepared Exh. "P-2" and Exh. "P-3." 31 Hence, while Fireman Sitchon may have had no personal knowledge of the fire incident, Exh. "P-2" and Exh. "P-3," which he prepared based on the statements of his investigation witnesses, especially that of Ronald Estanislao whose official duty it was to report on the incident, are exceptions to the hearsay rule because these are entries in official records.32 Consequently, his testimony on said documents are competent evidence of the contents thereof. 33 Furthermore, the petitioners are estopped from contesting the veracity of Exh. "P-3" because, as the CA correctly pointed out, "the aforesaid certification was used by appellants [petitioners] in claiming insurance for their office equipment which were destroyed by the fire." 34 Even without the testimony of Fireman Sitchon and the documents he prepared, the finding of the RTC and CA on the negligence of petitioners cannot be overturned by petitioners' bare denial. The CA 5

correctly applied the doctrine of res ipsa loquitur under which expert testimony may be dispensed with35 to sustain an allegation of negligence if the following requisites obtain: a) the accident is of a kind which does not ordinarily occur unless someone is negligent; b) the cause of the injury was under the exclusive control of the person in charge and c) the injury suffered must not have been due to any voluntary action or contribution on the part of the person injured. 36 The fire that damaged Belfranlt Building was not a spontaneous natural occurrence but the outcome of a human act or omission. It originated in the store room which petitioners had possession and control of. Respondent had no hand in the incident. Hence, the convergence of these facts and circumstances speaks for itself: petitioners alone having knowledge of the cause of the fire or the best opportunity to ascertain it, and respondent having no means to find out for itself, it is sufficient for the latter to merely allege that the cause of the fire was the negligence of the former and to rely on the occurrence of the fire as proof of such negligence. 37 It was all up to petitioners to dispel such inference of negligence, but their bare denial only left the matter unanswered. The CA therefore correctly affirmed the RTC in holding petitioners liable to respondent for actual damages consisting of unpaid rentals for the units they leased. The CA deleted the award of actual damages of P2.2 million which the RTC had granted respondent to cover costs of building repairs. In lieu of actual damages, temperate damages in the amount of P500,000.00 were awarded by the CA. We find this in order. 38 Temperate or moderate damages may be availed when some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. 39 The amount thereof is usually left to the discretion of the courts but the same should be reasonable, bearing in mind that temperate damages should be more than nominal but less than compensatory. 40 Without a doubt, respondent suffered some form of pecuniary loss for the impairment of the structural integrity of its building as a result of the fire. However, as correctly pointed out by the CA, because of respondent's inability to present proof of the exact amount of such pecuniary loss, it may only be entitled to temperate damages in the amount of P500,000.00,41 which we find reasonable and just. WHEREFORE, the petition is DENIED for lack of merit. SO ORDERED.

Republic of the Philippines SUPREME COURT THIRD DIVISION G.R. No. 159821 August 19, 2005 PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, Petitioners, vs. COURT OF APPEALS and QVEGG MARINE TRANSPORT and BUILDERS CORPORATION, Respondents. 6

DECISION CARPIO MORALES, J.: Assailed via petition for review on certiorari are the November 8, 2002 Decision and August 25, 2003 Resolution of the Court of Appeals in CA-G.R. CV No. 46297, "QVEGG Marine Transport and Builders Corporation v. Philippine Fisheries Development Authority." On August 1, 1989, petitioner Philippine Fisheries Development Authority as lessor, and respondent QVEGG Marine Transport and Builders Corporation as lessee, entered into a 10-year lease contract 1 covering the Iloilo Fishing Port Complex slipways and other auxiliary facilities for a monthly rental of P85,000.00. The pertinent provision of the contract reads: 3. For and in consideration of the use of the leased premises and above-mentioned equipment, the LESSEE hereby agrees to pay the LESSOR a monthly rental of EIGHTY FIVE THOUSAND PESOS (P85,000.00) for the first year of this Contract reckoned from the date of signing. The monthly rental shall be payable within the first five days of each month without need of demand at the office of the LESSOR. In case of delay in the payment of the said monthly rental, it shall earn interest at the rate of 3% per month on any or all delayed payments, provided that failure on the part of the LESSEE to pay rentals for two (2) successive months shall be a ground for the termination of this Contract without need of judicial action. The LESSEE likewise agrees to a yearly escalation rate of 10% on the monthly lease rental effective on the second year. (Emphasis and underscoring supplied). It appears that respondent was delinquent in the performance of its contractual obligations, prompting petitioner to terminate the contract by letter2 dated November 16, 1992. Responding to the letter of termination, respondent requested the restructuring of its overdue account. By letter3dated February 1, 1993, petitioner granted respondents request subject to the following "instructions": a. Initial payment of P200,000.00 plus all interest charges up to December 31, 1992 payable on or before February 15, 1993. b. Balance of the arrears up to December 31, 1992 shall be payable by post dated checks in six (6) equal monthly installments starting March 15, 1993 and every 15th day of the month thereafter. This requirement shall likewise be submitted on or before February 15, 1993. c. Regular payment of 1993 current monthly rentals in addition to monthly power and water bills. (Emphasis supplied) Petitioners letter of February 1, 1993 contained a caveat that should respondent fail to comply with the "instructions," it would terminate the contract and file the necessary legal action. It appears, however, that it was only on February 22, 1993 that respondent paid its January 1993 space rental and electric and water bills.4 For "failure to comply strictly with the terms and conditions imposed" in its letter of February 1, 1993, petitioner, by letter 5 dated March 1, 1993, terminated the lease contract. Respondent sought reconsideration of petitioners March 1, 1993 letter, by letter 6 dated March 2, 1993, explaining that it interpreted paragraph c of petitioners February 1, 1993 letter, in relation to paragraph 3 7

of the contract which provides that its failure to pay rentals for two successive months shall be a ground for the termination of the contract. Petitioner, by letter7 dated March 8, 1993, denied respondents request for reconsideration of its March 1, 1993 letter. Respondent thereupon filed on March 12, 1993 a complaint8 for Enforcement of Contract and Damages with prayer for restraining order and writ of preliminary injunction against petitioner before the Regional Trial Court (RTC) of Iloilo City seeking the following reliefs: 1. To declare the Contract of Lease as illegally terminated by [petitioner] and that the same be considered valid and binding in accordance with the full terms thereof[;] 2. To declare the continued bindingness (sic) of paragraph 3 of the Contract of Lease, including [respondents] right to enjoy the 2-month rental payment grace period; 3. To forever enjoin the defendant from interfering with [respondents] operation, use and occupancy of the leased shipyard and shiprepair facilities throughout the duration of the Contract of Lease as long as [petitioner] pays the stipulated rentals in accordance to the full terms of paragraph 3 thereof; 4. To order defendant to pay plaintiff the following amounts: 4.1. Nominal damages in the amount of P300,000.00 4.2. Exemplary damages in the amount of P100,000.00 4.3. Attorneys fees in the amount of P75,000.00 4.4. Litigation expenses in the amount of P20,000.00 Branch 24 of the Iloilo RTC, by Order of March 16, 1993,9 temporarily restrained petitioner "from interfering with [respondents] exercise of its rights and prerogatives as lessee under the Contract of Lease . . ." Petitioner subsequently filed a Motion to Dismiss10 the complaint on the following grounds: 1) venue was improperly laid; 2) the complaint states no cause of action; and 3) respondent has no valid cause of action for failure to exhaust administrative remedies. The motion was, however, denied by Order 11 of April 7, 1993. Petitioner thus filed its Answer12 dated May 10, 1993. Arguing for the dismissal of the complaint, petitioner contended that paragraph 3 of the lease contract was rendered ineffective by the new terms and conditions set forth in its February 1, 1993 letter; and that respondent failed to exhaust available administrative remedies by not appealing to the Department of Agriculture. The trial court, by Decision13 of March 14, 1994, found for respondent and declared illegal the termination of the contract by petitioner, it holding that paragraph c of the February 1, 1993 letter did not modify paragraph 3 of the lease contract. It, however, dismissed respondents prayer for damages on the ground that petitioner acted in good faith when it terminated the lease. The dispositive portion of the trial courts decision reads: 8

WHEREFORE, premises considered, the Court renders judgment as follows: (1) The termination by the [petitioner] of the Contract of Lease on March 8, 1993 (Exh. G) is hereby declared illegal and is thus nullified. (2) [Petitioner] is enjoined from terminating the lease contract in derogation of the Courts interpretation of paragraph C of Exh. 24, should there be cause henceforth to terminate the lease. The claim for damages by either is dismissed. Petitioner appealed the trial courts decision to the Court of Appeals before which it assigned to the trial court the following errors:14 1. THE LOWER COURT SERIOUSLY ERRED IN ITS DECISION WHEN IT DECLARED ILLEGAL AND NULLIFIED THE TERMINATION BY [PETITIONER] PFDS OF THE CONTRACT OF LEASE ON MARCH 8, 1993[; and] 2. THE LOWER COURT SERIOUSLY ERRED IN ITS DECISION WHEN IT ENJOINED [PETITIONER] PFDA FROM TERMINATING THE LEASE CONTRACT IN DEROGATION OF THE LOWER COURTS INTERPRETATION OF PARAGRAPH C OF EXHIBIT "24" SHOULD THERE BE CAUSE HENCEFORTH TO TERMINATE THE LEASE. Respondent too appealed the trial courts decision, questioning the dismissal of its claim for damages, attorneys fees and litigation expenses.15 The Court of Appeals, by the assailed Decision16 of November 8, 2002, dismissed the respective appeals of petitioner and respondent for want of merit. In sustaining the trial courts finding that petitioners termination of the lease contract was illegal, the Court of Appeals ratiocinated: Due reading of paragraph C of [petitioners] letter dated February 1, 1993, and of the entire letter itself, shows that it is not the intention the parties to do away with the prescription embodied in the original lease agreement, particularly Section 3 thereof, which provided for the amount, manner and period for payment of regular lease rentals. Indeed, the provisions of paragraph C of the letter dated February 1, 1993, cannot stand alone, and are inutile without the prescription stipulated under Section 3 of the parties original lease, inasmuch as paragraph C makes no provision as to the amount, period and manner of payment, other than providing that such payments must be regularly paid. Thus, the lower court was correct in interpreting the parties agreement to be embodied in both instruments, in the manner that it did, as such interpretation gives life to the expressed intention of the parties and renders their lease agreement effectual. As expressed under substantive law, an interpretation gives sense to all the stipulations of a contract, and renders the same effectual and binding between the parties is favored, rather than one which is absurd and ineffectual. x x x (Underscoring supplied) Petitioners Motion for Reconsideration having been denied by the Court of Appeals by Resolution 17 of August 25, 2003, it filed the present petition raising the following issues:

1. WHETHER OR NOT THE IMPOSSIBILITY OF PRIVATE RESPONDENT TO RENDER ITS OBLIGATION WHICH IS THE PAYMENT OF RENTALS, ARISING FROM THE LEASE AGREEMENT GIVES RIGHT TO THE PETITIONER TO HAVE THE LEASE AGREEMENT RESCINDED. 2. WHETHER ARTICLE 1191 OF THE NEW CIVIL CODE PROVIDES FOR A RESCISSION BY AGREEMENT THAT DOES NOT REQUIRE THE AGGRIEVED PARTY TO THE CONTRACT TO RESORT TO COURT ACTION BEFORE THE SAID CONTRACT CAN BE RESCINDED. 3. WHETHER OR NOT AN ACTION FOR RESCISSION OF CONTRACT IS AVAILABLE ON A CONTRACT WHICH HAD ALREADY EXPIRED.18 Petitioner submits that Article 1191 of the Civil Code provides for rescission by mutual agreement and, therefore, does not require the aggrieved party to resort to court action. It thus faults the Court of Appeals to have gravely erred in "requiring [it] to file a distinct action for rescission on Contracted Lease which already expired." Petitioner thus prays that: 1. Judgment be rendered declaring the act of petitioner in rescinding the Contract of Lease as valid under Article 1191 of the New Civil Code. 2. Judgment be rendered dismissing the case for lack of any factual or legal basis. 19 Respondent counters that the petition raises purely moot and academic matters, pointing out that the lease contract, the unilateral rescission of which was being challenged in the court a quo, had already expired in 1999; and even if the Court of Appeals decision is reversed, it would not in anyway change the position and circumstances of the parties on account of the expiration of the contract. The petition must be denied. Nowhere in the challenged Court of Appeals decision is petitioner required to first file a separate action for rescission. All that the Court of Appeals held is that, as found by the trial court, the termination by petitioner of the contract by letter of March 1, 1993 is illegal since paragraph 3 of the contract calls for its termination only after respondent fails for two successive months to comply with its obligations thereunder. Moreover, as correctly pointed out by respondent, the issues raised by petitioner in the instant petition are already moot and academic due to the expiration in 1999 of the lease contract. To still discuss them would be of no practical significance. Besides, the issues raised herein are premised on petitioners erroneous submission that the Court of Appeals was requiring it to file an action for rescission of the lease contract. At all events, on the merits, this Court finds no reversible error on the part of the Court of Appeals in upholding the decision of the trial court. The New Civil Code provides that "various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly." 20 Indeed, paragraph c of the February 1, 1993 letter cannot stand alone independently of paragraph 3 of the lease contract for paragraph c does not provide for the amount, period or manner of payment. Said

10

paragraph c did not thus amend paragraph 3 of the lease contract, hence, it is only after respondent fails to pay rentals for two (2) successive months that petitioner may terminate the contract. This Court quotes with approval the following observation of the Court of Appeals refuting petitioners claim that paragraph 3 of the lease contract was rendered ineffective by the new terms and conditions set forth in its February 1, 1993 letter to respondent: . . . [I]t appears that [petitioner] PFDAs proposals for the reinstatement of the lease was made on February 1, 1993; at a time when it should be aware that the rentals for January 1993 have not been paid within the first five days of said month. It strikes us as absurd, therefore, that [petitioner] would be accusing the [respondent] of an infraction, when at the time the said infraction is allegedly being made, [petitioner] was already performing acts showing its tolerance, if not acquiescence to such acts. As aptly observed by the lower court in its decision: The letter of February 1, 1993 was signed and issued by the [petitioner] knowing fully well that as of said date [respondent] had not yet paid its rental for the current month of January 1993 (which it paid later only on February 22, 1993). If [petitioner] seriously believed that [respondent] could no longer avail of the two-month grace period then it should not have issued at all the same amicable letter at the time when [petitioner] had already a one-month unpaid rental for January 1993. This bolsters our conclusion that the parties had agreed to be bound by the prescriptions in both contracts, particularly that the lessee is allowed a two-month grace period for payment of rentals, before rescission of the contract could be made . In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. x x x21 (Emphasis and underscoring supplied). In fine, by the parties contemporaneous and subsequent acts, they did not intend to do away with the two-month grace period for the payment of rentals under the contract of lease before said contract could be terminated. . . . [T]he Court finds relevant and significant the cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and in case of doubt, their contemporaneous and subsequent acts shall be principally considered. Where the parties to a contract have given it a practical construction by their conduct as by acts in partial performance, such construction may be considered by the court in construing the contract, determining its meaning and ascertaining the mutual intention of the parties at the time of contracting. The parties practical construction of their contract has been characterized as a clue or index to, or as evidence of, their intention or meaning and as an important, significant, convincing, persuasive, or influential factor in determining the proper construction of the contract.22 (Emphasis supplied). WHEREFORE, the petition is hereby DENIED. Costs against petitioner. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 115851 June 20, 2001

LA JOLLA, INC., petitioner, vs. COURT OF APPEALS and PELEGIA VIRAY DE AGUILAR, respondents. DE LEON, JR, J.: Before us is a petition for review on certiorari of the Decision 1 and the Resolution2 of the Court of Appeals dated February 21,1994 and June 10,1994, respectively, which extended the period of lease of private respondent Pelagia Viray de Aguilar over a portion of the building situated at No. 440 Rizal Avenue, Sta. Cruz, Manila to two (2) years from finality of decision. Petitioner is the owner of the land and building situated at Nos. 434 and 440 Rizal Avenue, Sta. Cruz, Manila having acquired the same through a Deed of Sale with Mortgage on October 13,1964. Private respondent, as early as then, was an occupant of a portion of the building situated at 440 Rizal Avenue, Sta. Cruz, Manila by way of a verbal contract of sub-lease on a month-to-month basis from a certain Leon Co Santos. It appears that on November 14, 1964, petitioner notified the private respondent that it was terminating her lease over the premises in question effective December 31, 1964 and demanded that she vacate the premises, since petitioner intended that the building be demolished for the construction of a new building. When private respondent failed to vacate despite demand, and further failed to pay the rentals from November 1, 1964, petitioner instituted an ejectment suit against private respondent. On March 27, 1965, a decision3 was rendered in favor of petitioner, the dispositive portion of which reads: IN VIEW OF THE FOREGOING, judgment by default is hereby rendered for the plaintiff and against the defendant, ordering the latter and all persons claiming under her to vacate the premises described in the complaint, to pay the sum of P1,200.00 as monthly rental from November 1, 1964 until said premises are actually vacated, to pay also the sum ofP300.00 as and for attorney's fees, plus costs. SO ORDERED. Private respondent appealed from said decision, but her appeal was dismissed by the then Court of First Instance of Manila, Branch XV in its Order dated November 26, 1965. 4 Undaunted, private respondent interposed a petition for review with the Court of Appeals; however, the same was dismissed. 5 The said decision became final and executory on October 23, 1966. Nonetheless, private respondent interposed an appeal by certiorari with this Court, which petition was dismissed by the Court, for being moot and 12

academic, after considering private respondent's manifestation that she was still occupying the leased premises based on adjusted monthly rentals.6 On August 6, 1976, petitioner instituted the second suit for ejectment against private respondent on the strength of private respondent's refusal to accede to the 50% increase of the monthly rental which was then at P2,400 .00 and to vacate the premises in question. On June 8, 1978, a decision 7 was rendered by the City Court of Manila. Branch II, the dispositive portion of which, in part, reads: Therefore, its is the considered finding of this Court that [La Jolla, Inc.] has proved by more than a preponderance of evidence, the allegations contained in its complaint and hereby orders [Pelagia Viray de Aguilar] to vacate the premises leased, to pay the increase in rentals from November, 1974 to December, 1975 in the total amount of P18,800.00 to pay monthly rental at the rate of P3,600.00 from January 1976, until [Pelagia Viray de Aguilar] actually vacates the premises, and to pay the costs of suit. All sums deposited in Court by [Pelagia Viray de Aguilar] shall be credited to [her] liabilities and deducted therefrom, the balance payable to [La Jolla, lnc.] .xxx SO ORDERED. On appeal, the Court of First Instance of Manila, Branch XXIV, rendered a decisions 8 on July 3, 1979, the decretal portion of which reads: PREMISES CONSIDERED, the judgment appealed from is hereby modified to the end that [Pelagia VIray de Aguilar] is ordered to pay the [La Jolla Inc.] the amount ofP10,456.32 as reasonable increase in rental of the premises in question for the period covering November, 1974 to December, 1975 within thirty(30) days from receipt of this Decision, and thereafter, to pay the monthly sum of P3,186.88 until [Pelagia Viray de Aguilar] finally vacates the premises. Without pronouncement as to costs. SO ORDERED. No appeal from said decision was filed, it became final and executory. On February 11, 1989, petitioner notified private respondent of the termination of her lease effective February 28,1989 over the property situated in 440 Rizal Avenue, Sta. Cruz, Manila on the grounds that (a) the lease being on a month-to-month basis, it is terminated at the end of every month; and (b) violation of the terms and conditions of the lease by sub-leasing a portion of the premises without the consent of the owner. Petitioner, therefore, demanded that the private respondent vacate the subject premises by February 28,1989.9 Private respondent failed to vacate the leased premised despite demand, hence, petitioner filed the third complaint for ejectment, dated August 31, 1989, raising as an additional cause of action the petitioner's right to receive reasonable compensation from private respondent in the amount of P15,000.00 for the unauthorized use by private respondent of the premises as well as attorney's fee and litigation expenses in the amount of P20,000.00, plus exemplary damages and costs. 10 In her Answer, private respondent inter-posed as an affirmative defense, among others, that petitioner had no cause of action, that petitioner's claim was barred by prior judgment in the second ejectment suit, Civil Case No. 121890, and that petitioner could not demand an increase in rental since the amount fixed at P3,186.88 a month in said prior decision had become res judicata.11 13

On May 6, 1992, a decision12 was rendered by the Metropolitan Trial Court of Manila, Branch V, the decretal portion of which reads: WHEREFORE, premises considered judgment is hereby rendered in favor of the plaintiff and against the defendant PELAGIA VIRAY DE AGUILAR ordering the latter and all the persons claiming rights under her to vacate the premises located at No. 440 Rizal Avenue, Sta. Cruz, Manila and deliver the peaceful possession thereof to the plaintiff; to pay the plaintiff the amount of P15,000.00 a month as reasonable compensation for the use and occupation of said premises from March 1989 until such time as defendant shall have actually vacated the same; ordering the defendant to pay the sum of P10,000.00 as for attorney's fees and expenses of litigation plus the costs of suit. SO ORDERED. On appeal, the above decision was affirmed by the Regional Trial Court of Manila, Branch 4.13 Thereafter, private respondent interposed a petition for review before the Court of Appeals. Acting on the petition, the appellate court issued on February 21, 1994 its decision, 14 the decretal portion of which reads: "WHEREFORE, the MTC decision in Civil Case No. 129779 CV; and that of the RTC in Civil Case No. 92-61720 subject of this petition for review are hereby MODIFIED to read as follows: The lease of defendant-petitioner Pelagia Viray de Aguilar over the premises at No. 440 Rizal Avenue, Sta. Cruz, Manila is hereby extended and fixed for a period of two (2) years from the date of finalitv of this decision at a prospective monthly rental of P15,000.00; and, for the use and occupation of the subject premises from March 1989 until the date of finality of this decision, defendant-petitioner is ordered to pay plaintiff respondent La Jolla, Inc. a reasonable compensation for the use and occupation of the subject premises at the rate of P9,000.00 monthly, provided that whatever monthly amounts defendant-petitioner has paid, by way of rental or for use of said premises during the period, shall be deducted from or offset against such compensation; and, furthermore, defendant petitioner shall pay P10,000.00 attorney's fees and expenses of litigation plus the costs of suit. No pronouncement as to costs in this petition." 15 SO ORDERED. To support its decision to extend the period of lease to two (2) years from the finality of decision, the appellate court declared: It is undisputed that defendant has been leasing the premises for more than 45 years as of 1992. The record does not show that she has ever defaulted in the payment of rentals. Because of the length of time she has leased the subject premises, it is our sense that in the broader interest of justice and equity the lease in question should be extended and fixed for a period of two (2) years under the authority of Art. 1687 of the Civil Code. This article provides that "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. xxx." The reason for this provision, according to Mr. Justice Paras, in his Civil Code of the Philippines Annotated (Vol. V; Twelfth Edition [1990], pp. 382-383), is obviously to reward the long-staying lessee. That the courts have authority to fix the period of lease under Art. 1687 was enunciated in F.S. Divinagracia Agro Commercial, Inc. v. Court of Appeals (No. L- 47350,104 SCRA, 180,186 14

[1981]). There the Supreme Court ruled that if Art. 1686 and Art. 1197 of the Civil Code are jointly considered, it will at once be evident that "the court is accorded the power to fix a longer term for the lease, which power is potestative or discretionary in nature. This prerogative is addressed to the court's sound judgment and is controlled by equitable considerations. xxx." Furthermore, that this Court can here effect the extension of the lease in question and fix its term by this decision is also authorized by F.S. Divinagracia Agro Commercial in these words: "x x x The exercise of the power given to the Court in Article 1687 to extend the period of the lease when the defendant has been in occupancy of the premises for more than a year, does not contemplate a separate action for that purpose. That power may be exercised as an incident in the action for ejectment itself and by the court having jurisdiction over it (Ramirez vs. Sy Chit, 21 SCRA 1364). Moreover, We cannot lose sight of the fact that it would be an idle and costly procedure to require the lessee to file another action to have the term of the lease fixed, with all the possible delays and inconveniences attendant upon a lawsuit."16 Partial Reconsideration of the above decision was sought by petitioner La Jolla, Inc. contending, among others, that the extension was not within the issues raised in the case and granting such a relief violated petitioner's constitutional right to due process. However, the appellate court, in a Resolution dated June 10, 1994, denied reconsideration of its decision.17 Hence, the instant petition anchored on a lone error, to wit: Respondent Court gravely abused its djscretion in motu propio, extending the period of private respondent's lease notwithstanding the same being for a definite period. The instant petition is meritorious. Article 1687 of the Civil Code, which the respondent Court of Appeals cited to support the extension of the lease, provides: 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 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 court may likewise determine a longer period after the lessee has been in possession of over six months. In the case of daily rent, the court may also fix a longer period after the lessee has stayed in the place for over one month. This Court has settled that the power of the court to "fix a longer term for lease is potestative or discretionary-'may' is the word- to be exercised or not in accordance with the particular circumstances of the case; a longer term to be granted where equities come into play, demanding extension, to be denied where none appear, always with due deference to the parties freedom to contract." 18 In the case at bar, it is disputed that the lease was verbal, that the rentals were paid monthly, and that proper demand and notice by the lessor to vacate was given. Under existing jurisprudence, a verbal contract of lease between owner and lessee on a month-to-month basis is a lease with definite period and such expires after the last day of any given thirty-day period, upon proper demand and notice by the 15

lessor to vacate.19 Thus, the appellate court should not have extended the period of lease considering that the potestative authority of the courts to fix a longer term for a lease under Article 1687 of the Civil Code applies only to cases where there is no period fixed by the parties. 20 Furthermore, Article 1675 of the Civil Code excludes cases falling under Article 1673 (which provides among others, that the lessor may judicially eject the lessee when the period agreed upon or that which is fixed has expired) from the cases wherein, pursuant to Article 1687, courts may fix a longer period of lease. All these considered, this Court holds that the Court of Appeals erred in granting an extension period of two (2) years for the lease when the underlying facts and circumstances of the case did not warrant the same. Where petitioner have been deprived of its possession over the leased premises for so long a time, and it is shown that, indeed, the private respondent was the recipient of substantial benefits while petitioner was unable to have the full use and enjoyment of a considerable portion of its valuable property, such militates against further deprivation by fixing a period of extension. Basic common law principle of fairness and equity shuns property entailment that borders on perpetuity to the exclusion of the owner. Be that as it may, since this case has been pending from the time it was filed in 1994 until now, private respondent has effectively obtained an extension of nearly seven (7) years which is long enough for her to find another place.21 WHEREFORE, the subject petition is hereby GRANTED. The Decision and the Resolution of the Court of Appeals dated February 21, 1994 and June 10, 1994,respectively, in CA-G.R. SP No. 29608 are hereby MODIFIED by deleting the extension of the lease for a period of two (2) years. SO ORDERED. 1wphi1.nt

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 134267 May 9, 2005

DAVID G. DULA, petitioner, vs. DR. RESTITUTO MARAVILLA and TERESITA MARAVILLA, respondents. DECISION GARCIA, J.: Under consideration is this petition for review on certiorari under Rule 45 of the Rules of Court to nullify and set aside the following issuances of the Court of Appeals in CA-G.R. SP No. 46736, to wit: 1) Decision1 dated May 14, 1998, affirming, with modification, an earlier decision of the Regional Trial Court at Makati City in an appealed ejectment case commenced by the herein 16

respondents against the petitioner before the Metropolitan Trial Court (MeTC) of Makati City; and 2) Resolution2 dated June 29, 1998, denying petitioners motion for reconsideration. The factual milieu. Sometime in November, 1993, herein respondents the spouses Restituto Maravilla and Teresita Maravilla purchased a 5-door apartment building at No. 1849 Eureka Street, Makati City, Unit A of which is occupied by herein petitioner, David G. Dula, since 1968 at a monthly rental of P2,112.00 under an oral month-to-month contract of lease with the former owner. On January 10, 1994, respondents addressed a notice to petitioner formally informing the latter of the termination of his lease and giving him three (3) months from January 31, 1994 within which to vacate the unit occupied by him and to surrender the possession thereof. Petitioner refused. Hence, on September 29, 1994 in the Metropolitan Trial Court (MeTC) of Makati City, a complaint for ejectment was filed against him by the respondents. Resolving the case under the Rules on Summary Procedure, the MeTC, in a decision dated May 24, 1995,3rendered judgment for the respondents, thus: There having been a substantial compliance with the requirements provided by law, judgment is hereby rendered in favor of the plaintiff and against the defendant as follows: (a) Ordering the defendant DAVID DULA and all persons claiming right or interest under him to vacate the leased premises in question and to turn over the peaceful possession thereof to plaintiff or to its duly authorized representative; (b) Ordering the defendant to pay plaintiff the sum of P2,112.00 a month from September 1994 and every month thereafter until possession thereof should have been peacefully surrendered to plaintiff; (c) Ordering defendant to pay plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) as and for attorneys fees; and, (d) to pay the costs of suit. SO ORDERED. In time, petitioner went on appeal to the Regional Trial Court (RTC) at Makati City, contending, in the main, that the complaint filed against him failed to state a cause of action, and, therefore, should have been dismissed outright by the MeTC. After the parties have submitted their respective memoranda, the RTC came out with its decision of August 27, 1997,4 affirming in toto the appealed decision of the MeTC. With his motion for reconsideration having been denied by the same court in its order of January 26, 1998,5petitioner elevated the case to the Court of Appeals whereat his recourse was docketed as CA-G.R. SP No. 46736, therein raising the following arguments: (1) the ejectment complaint is fatally flawed as it 17

failed to state a cause of action because while it is based on the need of the leased premises for the personal use of the respondents, the same complaint failed to allege that respondents do not own any other residential unit in the same municipality, as required by Section 5 (c) of Batas Pambansa (B.P.) Blg. 877; (2) both the MeTC and the RTC erred in ordering petitioners ejectment on ground of expiration of the lease despite the fact that such a ground is not pleaded in the complaint; and ( 3) even if alleged, the expiration of petitioners month-to-month contract of lease cannot be a basis for ejectment because Section 6 of B.P. Blg. 877 suspended the application of Article 1687 of the Civil Code. In the herein assailed decision dated May 14, 1998, the Court of Appeals affirmed the appealed May 24, 1995 decision of the RTC minus the award of attorneys fees, thus: WHEREFORE, with the exception of the deletion of the award for attorneys fees, the decision herein appealed from is hereby AFFIRMED, without pronouncement as to costs. SO ORDERED. Undaunted, petitioner is now with us via the instant recourse raising the same issues already passed upon by the three (3) courts below. We DENY. In the complaint6 they filed against petitioner before the MeTC of Makati City, respondents, as plaintiffs therein, alleged, inter alia, thus: 6. That on January 10, 1994 plaintiffs through counsel made a written notice and demand that the former is terminating the lease over the premises effective January 31, 1994 for the reason of personal use and to pay rentals with three (3) months to vacate and surrender premises; As may be gleaned from the foregoing allegations, two (2) grounds are relied upon by the respondents in seeking petitioners ejectment from the premises in question, namely: (a) respondents need of the leased premises for their own personal use; and (b) expiration of the lease contract with the termination of the month-to-month lease effective January 31, 1994. In both instances, respondents gave petitioner a grace period of three (3) months within which to vacate the place. The aforementioned grounds for judicial ejectment are expressly provided for in B.P. Blg. 877, entitled "An Act Providing for the Stabilization and Regulation of Rentals of Certain Residential Units and for other Purposes", which, by virtue of R.A. 7644, was in force until 1997. Section 5 thereof pertinently reads: Section 5. Grounds for Judicial Ejectment. Ejectment shall be allowed on the following grounds: xxx xxx xxx

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(c) Legitimate need of owner/lessor to repossess his property for his own use or for the use of any immediate member of his family as a residential unit, such owner or immediate member not being the owner of any other available residential unit within the same city or municipality: Provided, however, That the lease for a definite period has expired: Provided, further, That the lessor has given the lessee formal notice three (3) months in advance of lessors intention to repossess the property: and Provided, finally, That the owner/lessor is prohibited from leasing the residential unit or allowing its use by a third party for at least one year. xxx xxx xxx

(f) Expiration of the period of the lease contract. xxx xxx xxx

Anent the first ground under Section 5(c) above, which is the respondents need of the property for their own use, petitioner contends that the complaint should be dismissed for lack of cause of action because it failed to allege that the respondents had no other available residential unit within the same city or municipality. We agree with the Court of Appeals that there was here a substantial compliance with the requirement of Section 5 (c) of B.P. Blg. 877 when respondents specifically averred in their Supplemental to Position Paper that "plaintiffs has (sic) no other property in Makati except that property located at Eureka St., Makati, Metro Manila"7. In much the same way that a complaint, which fails to state a cause of action, may be cured by evidence presented during the trial in regular procedure, a defective complaint in summary procedure may likewise be cured by the allegations in the position paper. Thus, the MeTC cannot be faulted for not dismissing the case for lack of cause of action. The ground for judicial ejectment stated in Section 5 (c) of B.P. Blg. 877 may be reduced to the following essential requisites: (1) the owners/lessors legitimate need to repossess the leased property for his own personal use or for the use of any of his immediate family; (2) the owner/lessor does not own any other available residential unit within the same city or municipality; (3) the lease for a definite period has expired; (4) there was formal notice at least three (3) months prior to the intended date to repossess the property; and (5) the owner must not lease or allow the use of the property to a third party for at least one year. Thus far, we have noted and discussed the first and second requisites. The fact that there was formal notice and that it was given at least three (3) months from intended date to repossess the property, which is the fourth requisite, is not disputed. Our discussion now brings us to the third element, which is the alleged expiration of the period of lease. 19

It is acknowledged that there was neither any written nor verbal agreement as to a fixed period of lease between the respondents and the petitioner. There was, however, a verbal agreement for the payment of rental atP2,112.00 on a monthly basis. By express provision of Article 16878 of the Civil Code, the term of the lease in the case at bar is from month-to-month. Admittedly, there was a written notice served by the respondents on January 10, 1994 upon petitioner for the termination of the lease effective January 31, 1994. Citing this Courts ruling inDe Vera vs. Court of Appeals,9 the Court of Appeals held that the period of lease thereby expired by the end of the month of January, 1994. Petitioner, however, contends otherwise. He argues that the operation of Article 1687 was suspended with the suspension of Article 1673 by Section 6 of B.P. Blg. 877, which states: Section 6. Application of the Civil Code and Rules of Court of the Philippines. Except when the lease is for a definite period, the provisions of paragraph (1) of Article 1673 10 of the Civil Code of the Philippines, insofar as they refer to residential units covered by this Act, shall be suspended during the effectivity of this Act, but other provisions of the Civil Code and the Rules of Court on lease contracts, insofar as they are not in conflict with the provisions of this Act shall apply. The Court disagrees. The Courts pronouncement in De Vera vs. Court of Appeals,11 is enlightening: x x x The issue in this case is whether the oral contract of lease was on a month-to-month basis which is terminated at the end of every month. We hold that it is. We have already ruled in a number of cases that a lease on a month-to-month basis is, under Art. 1687, a lease with a definite period, upon the expiration of which upon demand made by the lessor on the lessee to vacate, the ejectment of the lessee may be ordered. Art. 1687 of the Civil Code provides: 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. This provision has not been affected by the suspension in 6 of B.P. Blg. 877 which provides: 6. Application of the Civil Code and Rules of Court of the Philippines. - Except when the lease is for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil Code of the Philippines, in so far as they refer to residential units covered by this Act, shall be suspended during the effectivity of this Act, but other provisions of the Civil Code and the Rules of Court on lease contracts, in so far as they are not in conflict with the provisions of this Act shall apply. Thus, what has been suspended by the Rent Control Law (6 of B.P. Blg. 877, formerly 6 of B.P. Blg. 25) is Art. 1673 and not Art. 1687 of the Civil Code . The effect of the suspension [of 20

Art. 1673] on Art. 1687 is only that the lessor cannot eject the tenant by reason alone of the expiration of the period of lease as provided in said Art. 1687. Otherwise, Art. 1687 itself has not been suspended. Hence, it can be used to determine the period of a lease agreement. As petitioner was notified of the expiration of the lease effective December 30, 1990, her right to stay in the premises came to an end. (Emphasis supplied.) As early as 1986, in Rivera vs. Florendo,12 the Court settled this issue on Section 6 of B.P. 877 (formerly Section 6, of B.P. 25) when it explained: What is suspended under the aforequoted provision of law is Article 1673 of the Civil Code of the Philippines and not Article 1687 of the same Code. The effect of said suspension is that independently of the grounds for ejectment enumerated in Batas Pambansa Blg. 25, the owner/lessor cannot eject the tenant by reason of the expiration of the period of lease as fixed or determined under Article 1687. It does not mean that the provisions of Article 1687 itself had been suspended. Thus, the determination of the period of a lease agreement can still be made in accordance with said Article 1687. Similar to the case at bar, in Rivera, there was admittedly no definite period of lease agreed upon by the parties. However, it was established that the rent was paid on a monthly basis. The Courts conclusion in Rivera that the period of lease is considered to be from month to month in accordance with Article 1687 is, therefore, applicable to the present case as well. When the respondent spouses gave petitioner notice on January 10, 1994 of their personal need to use the property, demanding that petitioner vacate the same, the contract of lease is deemed to have expired as of the end of that month or on January 31, 1994 as indicated in the said notice to vacate. In Baens vs. Court of Appeals,13 we held: x x x even if the month to month arrangement is on a verbal basis, if it is shown that the lessor needs the property for his own use or for the use of an immediate member of the family or any other statutory grounds to eject under Section 5 of Batas Pambansa Blg. 25 (later also Section 5 of B.P. Blg. 877), which happens to be applicable, then the lease is considered terminated as of the end of the month, after proper notice or demand to vacate has been given . (See Crisostomo v. Court of Appeals, 116 SCRA 199). (Emphasis supplied.) The third element required in Section 5(c) of B.P. Blg. 877 which is the expiration of the lease contract is definitely present in the instant case. The fifth element, being in the nature of a condition, simply entails an undertaking by the owner/lessor not to lease or allow a third party to use the property for at least one year. All the elements required by Section 5(c) of B.P. Blg. 877 are extant in the present case. There is, then, no other logical conclusion but to uphold the uniform ruling of the three (3) lower courts mandating petitioners ejectment from the subject premises. Anent the second ground for judicial ejectment under Section 5(f) of B.P. Blg. 877 which is the expiration of the lease contract, this Court for the first time, through Justice Teodoro Padilla in Uy Hoo and Sons Realty Development Corp. vs. Court of Appeals,14 applied Article 1687 of the Civil Code resulting in the expiration of the lease contract therein involved, so much so that even if the lessor does 21

not need the leased property for personal use under Section 5(c) of B.P. Blg. 877, such expiration of the lease term may be equally be used by the lessor to eject the tenant based on Section 5(f) of B.P. 877, ratiocinating thus: While it is true that the factual situations in the Miranda case and in the Rivera case it cites involved a need by the lessor of the leased premises for his own use or that of an immediate member of his family, yet, the thrust of the decisions in said cases appears to be that "the determination of the period of a lease agreement can still be made in accordance with said Article 1687" and that, in a month to month lease situation, "when petitioners (lessor) gave private respondent (lessee) notice to vacate the premises in question, the contract of lease is deemed to have expired as of the end of the month." Besides, while Sec. 5(f) of BP Blg. 25 originally stated that "expiration of the period of a written lease contract" is one of the grounds for judicial ejectment (like need of the leased premises by the lessor under Sec. 5[c]). BP Blg. 877 amended Sec. 5(f) of BP Blg. 25 into stating that "expiration of the period of the lease contract" is a ground for judicial ejectment: thus further bolstering petitioners contention that a month to month lease under Art. 1687 is lease with a definite period, the expiration of which, upon previous demand to vacate, can justify judicial ejectment. The ruling in Uy Hoo was applied by the Court in the succeeding cases of Palanca vs. Intermediate Appellate Court,15 Legar Management & Realty Corp. vs. Court of Appeals,16 and once again, in De Vera vs. Court of Appeals17, where the Court ruled: Second. Petitioner claims that none of the grounds enumerated in 5 of B. P. Blg. 877 is present in this case for which reason, she could not be judicially ejected from the property by reason alone of the expiration of the lease. The contention has no basis. The expiration of a period of lease as a ground for ejectment is expressly provided in 5(f) . Petitioner is in error in relying on 5 of the original law, B.P. Blg. 25, which speaks of the expiration of "written lease contract" as ground for ejectment implying that an oral lease contract like the one at bar is a lease contract without a definite period. B.P. Blg. 877 5(f) now says "expiration of the period of the lease contract," thus removing the distinction between a written and oral contract of lease. Hence, the ejectment of petitioner is justified. (Emphasis supplied.) Recapitulating, the Court stresses that Article 1687 of the Civil Code has not been suspended by Section 6 of Blg. 877, such that the period of the lease contract may be made deemed to expire in accordance with Article 1687.18 Accordingly, a lease agreement though not having a fixed period, but rentals are paid monthly, is deemed to be from month to month, thereby considered to be for a definite period, nonetheless. Such a lease contract expires after the last day of any given 30-day period repeating the same cycle of the 30-day period until either party expresses his intention to terminate the month-to-month lease agreement.19 All told, petitioner failed to show why the actions of the three courts which have passed upon the same issue should be reversed. Likewise, he failed to show that said courts factual findings are not based on substantial evidence or that their decisions are contrary to applicable law and jurisprudence. Finally, with this case having been unnecessarily prolonged from the time it was filed in 1994, petitioners lease has in effect been extended long enough for him to find another place to stay in. As in Rivera, supra, per then Justice (later Chief Justice) Marcelo Fernan, where the Court said:

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The instant case, which is summary in nature, had dragged on for over five (5) years. To obviate further delay, the decision rendered herein is final and executory (Emphasis supplied.), this case which has dragged on not only for five (5) years but more than ten (10) years, will more than justify this Court in suspending the Rules in the greater interest of substantial justice. WHEREFORE, petition is DENIED. This judgment is immediately executory. SO ORDERED.

Republic of the Philippines SUPREME COURT SECOND DIVISION G.R. No. 159212 September 12, 2005 NAVOTAS INDUSTRIAL CORPORATION, represented herein by its acting president DANIEL L. BAUTISTA, Petitioners, vs. GERMAN D. CRUZ, MARCELO D. CRUZ, ROSALINA CRUZ-LAIZ, MARIANO A. CRUZ, JR., THE HEIRS OF ROGELIO D. CRUZ, namely, SYLVIA, ROSYL, ROGELIO, JR., SERGIO and ESTRELLA, all surnamed CRUZ, the HEIRS OF SERAFIN D. CRUZ, namely, ADELAIDA, MERCEDITAS and GABRIEL, all surnamed CRUZ, MARIA CRISTINA CRUZ-YCASIANO, MONICA CRUZ-DADIVAS and CARMEN VDA. DE CRUZ,Respondent. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69818, reversing the Decision of the Regional Trial Court (RTC) in Civil Case No. 2427-MN. The Antecedents Carmen Vda. De Cruz was the owner of a parcel of land located in Navotas, Rizal, with an area of 13,999 square meters, covered by Transfer Certificate of Title (TCT) No. 81574. 2 On October 5, 1966, Carmen Cruz, as lessor, and the Navotas Industrial Corporation (NIC), through its president, Cipriano C. Bautista, as lessee, executed a contract of lease over one-half portion of the said property, shown in the sketch appended thereto as Annex "A." The lease was for the period of October 1, 1966 to midnight of October 1, 1990. The property was to be used for shipyard slipways and the lessees other allied businesses. The NIC obliged itself to construct two slipways, with all its accessories, within the first 10 years of the lease with a total value of not less than P450,000.00.3

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On March 14, 1973, the property was mortgaged to the China Banking Corporation (CBC) as security for a loan by two of Carmen Cruzs children, Mariano and Gabriel. 4 The owners duplicate of the title was delivered to and kept by the CBC as mortgagee. On December 31, 1974, Carmen Cruz executed a Deed of Absolute Sale of Realty with Assumption of Mortgage in which she, as vendor, sold and conveyed the property to her children, namely, Serafin D. Cruz (married to Adelaida Cruz), Mariano Cruz, Rogelio Cruz, Sr. Carmencita Cruz and Sr. Mary Carmela Cruz, for the purchase price of P350,000.00 which the vendor acknowledged to have received from the vendees. 5 In a Letter6 dated November 22, 1976, Mariano Cruz, in his behalf and in behalf of the other vendees, requested CBC to conform to the sale of the property, a copy of which was attached to the said letter. The CBC refused. In the meantime, relations between Carmen Cruz and her children became strained. She believed that her children had ignored her and failed to take care of her. On June 27, 1977, Mariano Cruz, for himself and in behalf of the other vendees, presented the said deed of sale to the Register of Deeds for registration purposes. 7 In the same letter, they requested the Register of Deeds to request the CBC for the transmittal of the owners TCT No. 81574 for the annotation of the Deed of Sale with Assumption of Mortgage. However, on June 28, 1977, the CBC, through counsel, wrote Mariano Cruz, informing him that Carmen Cruz had instructed it not to conform to the Deed of Sale with Assumption of Mortgage, and not to surrender the owners duplicate of the said title. In the meantime, the balance of the loan account secured by the mortgage was paid to the CBC. Thus, on June 29, 1977, the CBC executed a Cancellation of Real Estate Mortgage over the property. 8 However, the deed was not presented to the Register of Deeds for registration. On the same day, Mariano Cruz executed an Affidavit of Adverse Claim 9 stating, inter alia, that he and the others named therein were the vendees of the property as evidenced by a Deed of Sale with Assumption of Mortgage appended thereto, and that, to protect their rights and interests, the said affidavit of adverse claim was being executed as a cautionary notice to third persons and the world that the property had been sold to them. It was, likewise, stated that Carmen Cruz had ordered the CBC not to surrender the owners duplicate of TCT No. 81574. The aforesaid affidavit of adverse claim was inscripted at the dorsal portion of the title10 on June 30, 1977 as Entry No. 22178. In a Letter11 dated July 1, 1977, the Register of Deeds requested CBC to surrender the owners duplicate of TCT No. 81574, pursuant to Section 72 of Act 496, in order that proper memorandum be made thereon. The Register of Deeds was obviously unaware that the CBC had already executed the cancellation of real estate mortgage on June 29, 1977. On July 30, 1977, Carmen Cruz, as lessor, and the NIC, as lessee, executed a Supplementary Lease Agreement;12 the October 5, 1966 Contract of Lease earlier executed by the parties was modified, in that the terms of the lease was extended for another 15 years to expire on October 1, 2005. The lessee was, likewise, given up to October 1, 1982 within which to construct the two slipways at a cost of not less than P600,000.00 and increasing the lease rental for the property. The lessee was granted the option to buy the property for the price ofP1,600,000.00. On the same day, the parties executed a Contract of Lease 13 over an additional portion of the property, with an area of 590.58 square meters, as shown in the sketch appended thereto. However, the said contracts were not presented for registration to the Register of Deeds. 24

On September 14, 1977, the aforesaid Cancellation of Real Estate Mortgage the CBC had earlier executed (on June 29, 1977) was presented to the Register of Deeds and annotated at the dorsal portion of TCT No. 81574 as Entry No. 27796. The following were, likewise, presented to the Register of Deeds for registration, and, thereafter, annotated at the dorsal portion of the said title: the Contract of Lease dated October 5, 1966 (Entry No. 27797), the July 30, 1977 Contract of Lease (Entry No. 27798), and the Supplementary Lease Agreement (Entry No. 27799).14 In the meantime, Mariano Cruz and the other vendees presented the Deed of Sale with Assumption of Mortgage to the Register of Deeds for registration. On December 19, 1977, the Register of Deeds cancelled the said title and issued TCT No. 11272 in the names of the new owners. TCT No. 11272 was later cancelled by TCT No. R-11830. In a Letter15 dated October 20, 1978, Mariano Cruz, et al. informed the NIC that the property had been sold to them, and gave it 30 days from receipt of the letter to vacate the property and return possession to them. The vendees, likewise, informed the NIC that since the October 5, 1966 Contracts of Lease and the July 30, 1977 Supplementary Lease Agreement were annotated at the back of TCT No. 81574 only on September 14, 1977, after the affidavit of adverse claim of Mariano Cruz, et al. was annotated on June 29, 1977, such contracts were null and void. However, the NIC refused to vacate the property. In the meantime, the property was subdivided into three lots: Lots 1-A, 1-B and 1-C. Lot 1-A had an area of 6,307 square meters, covered by TCT No. 8509916 issued on July 5, 1982. Carmen Cruz filed a complaint with the RTC of Navotas against Cipriano Bautista, in his capacity as president of the NIC, for the declaration of nullity of the July 30, 1977 Supplementary Lease Agreement and Contract of Lease, and for the cancellation of the annotation at the back of TCT No. 81574 referring to the said contracts. The complaint was amended to implead the NIC as party-defendant. Carmen Cruz alleged therein that she was the owner-lessor of the property subject of the said contract; the NIC failed to construct the two slipways within the period stated in the lease contract; it took advantage of the animosity between her and her children, and caused the preparation of the July 30, 1977 Supplementary Lease Agreement and Contract of Lease; the NIC was able to insert therein blatantly erroneous, one-sided and highly unfair provisions; and that the said contracts were even extended for a period long beyond her life expectancy (the plaintiff was then almost 80 years old). She further alleged that the provisions in the Contract of Lease and Supplementary Lease Agreement which granted NIC the exclusive option to buy the property, was a sham. She prayed that, after due proceedings, judgment be rendered in her favor: WHEREFORE, it is respectfully prayed that judgment be rendered declaring the Supplementary Contract of Lease dated July 30, 1977 as null and void ab initio; ordering the defendant and all persons claiming possession of the premises under it to vacate and turn over the premises to the plaintiffs; ordering the defendant to pay the reasonable monthly rental of P10,000.00 for the occupancy of the premises, beginning October 1, 1990, until it vacates the premises; ordering the defendant to pay the plaintiffs the sum of P30,000.00 as moral damages; the sum of P50,000.00 as attorneys fees, and the sum of P1,000.00 as appearance fee of the undersigned counsel; to pay the sum of P5,000.00 as litigation expenses; plus costs of suit. Plaintiffs further pray for such other relief and remedies they are entitled to in the premises. 17 Mariano Cruz and his siblings filed a complaint-in-intervention in the said case, alleging that they were the co-owners of the property, and praying that judgment be rendered in their favor, as follows:

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WHEREFORE, it is respectfully prayed that judgment be rendered rescinding the Contract of Lease dated October 5, 1966, (Annex "B"), declaring as null and void the Supplementary Lease Agreement (Annex "C"), and the Contract of Lease (Annex "D"), both dated July 30, 1977, for having been entered into by the plaintiff who had long ceased to be the owner of the property in question, awarding the sum of P450,000.00, actual damages, representing the value of the improvements which the defendants bound themselves to introduce in the premises; awarding the plaintiffs-intervenors the sum of P100,000.00 as exemplary damages; the sum of P150,000.00 as moral damages; P50,000.00 as attorneys fees and P10,000.00 as litigation expenses. Plaintiffs-intervenors further pray for such other relief and remedies they are entitled to in the premises. 18 However, Carmen Cruz filed a motion to dismiss the amended complaint. On February 6, 1984, the trial court issued an Order19 granting the motion and dismissing the amended complaint and the complaint-inintervention. The order became final and executory. On June 23, 1990, Mariano Cruz, et al. wrote the NIC that they would no longer renew the October 5, 1966 contract of lease which was to expire on October 1, 1990; as far as they were concerned, the July 30, 1977 Supplementary Lease Agreement and Contract of Lease were null and void, the same having been executed and annotated on September 14, 1977 at the back of TCT No. 81574 long after the annotation of the affidavit of the adverse claim of Mariano Cruz, et al. on June 30, 1977.20 In a Letter21 dated January 11, 1991, Mariano Cruz, et al. wrote the NIC, demanding that it vacate the property within 30 days from notice thereof, otherwise, a complaint for unlawful detainer would be filed against it. However, the NIC refused to vacate the property. On April 18, 1991, Mariano Cruz and his siblings filed a Complaint 22 against the NIC with the Municipal Trial Court (MTC) of Navotas for ejectment. However, on June 11, 1992, the trial court issued an Order 23 dismissing the complaint, on the ground that it had no jurisdiction over the case, it appearing that the validity of the July 30, 1977 Supplementary Lease Agreement and the Contract of Lease, in relation to the deed of absolute sale with assumption of mortgage executed by Carmen Cruz, were intertwined with the issue of NICs right of possession. The plaintiffs sought a motion for reconsideration of the decision, which the MTC denied on September 15, 1992. The plaintiffs appealed to the RTC, which rendered a decision granting the appealed decision.24 The plaintiffs-appellants filed a petition for review with the CA. On July 13, 1993, the CA affirmed the decision of the RTC and dismissed the petition. 25 The decision became final and executory. In the meantime, Mariano Cruz died intestate and was survived by his son Mariano Cruz, Jr.; Rogelio Cruz, likewise, died and was survived by his children Sylvia, Rosyl, Rogelio, Jr., Sergio and Estrella, all surnamed Cruz; Serafin Cruz also died and was survived by his wife Adelaida, and his children Merceditas and Gabriel. TCT No. 81574 was reconstituted and TCT No. R-85099 was issued. On January 24, 1995, German and Marcelo Cruz, Rosalina Cruz-Laiz, Mariano Cruz, Jr. and the said heirs filed a Complaint against Carmen Cruz, as unwilling plaintiff, and the NIC with the RTC of Malabon for the nullification of the July 30, 1977 Supplementary Lease Agreement and Contract of Lease. The complaint was amended to allege that they were the co-owners of the property covered by TCT No. 85099 based on the Deed of Sale with Assumption of Mortgage executed by Carmen Cruz on December 31, 1974; an affidavit of adverse claim was annotated at the dorsal portion of TCT No. 81574 on June 30, 1977, despite which NIC caused Carmen Cruz to execute, on July 30, 1977, a Supplementary Lease Agreement and Contract of Lease by taking advantage of her age, mental weakness and lack of will; and that NIC failed to pay rentals for the property. The plaintiffs prayed that: 26

WHEREFORE, it is respectfully prayed that, after trial on the merits, judgment be rendered in favor of the plaintiffs as follows: 1. Under the First Alternative Cause of Action, declaring the Contract of Lease dated 30 July 1977 and the Supplementary Lease Contract dated 30 July 1977, Annex "D" hereof, as null and void ab initio; or, alternatively, Under the Second Alternative Cause of Action, annulling the said Contract of Lease and Supplementary Lease Contract. Under the Third Alternative Cause of Action, rescinding and canceling the Contract of Lease and Supplementary Lease Agreement, ordering the defendants to vacate the leased premises and to pay plaintiffs all unpaid rentals from 1 October 1991 until defendants vacate the premises. 2. Under the Second Cause of Action, ordering defendants NAVOTAS and Bautista to vacate and surrender the possession of the subject property and all improvements thereon to the plaintiffs; 3. Under the Third Cause of Action, ordering defendants NAVOTAS and Bautista, jointly and severally, to pay plaintiffs the reasonable compensation for the use of the premises in the amount of at least P10,000.00 a month from October 1990 up to the filing of this Complaint, totalling P500,000.00, as well as P10,000.00 every month thereafter until defendants shall have vacated and surrendered the premises to the plaintiffs. 4. Under the Fourth Cause of Action, ordering defendants NAVOTAS and Bautista, jointly and severally, to pay the plaintiffs exemplary damages of at least P50,000.00 or such amount as the Honorable Court may deem just and equitable in the premises; and 5. Under the Fifth Cause of Action, ordering defendants NAVOTAS and Bautista to pay plaintiff attorneys fees and expenses of litigation in such amount as may be established during the trial, but not less than P35,000.00. Plaintiffs pray for such other reliefs just and equitable in the premises. 26 In her answer with cross-claim, Carmen Cruz alleged, inter alia, that she was willing to be made a partyplaintiff, although she was initially reluctant to become one because of the burden of a court hearing; she admitted that the plaintiffs were the co-owners of the property; Bautista was granted an "exclusive option to buy" the leased property at the ridiculously low fixed price of P1,600,000.00, which, according to Carmen Cruz, was an option unsupported by any consideration; hence, null and void. 27 Carmen Cruz prayed that, after due proceedings, judgment be rendered in her favor: WHEREFORE, it is most respectfully prayed that the complaint as against answering defendant be dismissed, and that: AS TO THE CROSS-CLAIM a) The Contract of Lease and the Supplemental Lease Contract be declared null and void due to vitiated consent;

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b) In the event that monetary judgment be rendered by this Honorable Court against answering defendant in favor of the plaintiffs, her co-defendants, Navotas Industrial Corporation and Bautista, be made to reimburse her for all or part of the said judgment; c) Co-defendants be ordered to pay her moral as well as exemplary damages in the amount which this Honorable Court may deem just and proper; d) Co-defendants, instead of answering defendants, be, likewise, ordered to pay the plaintiffs, the rentals in arrears over the premises which now amounts to P147,000.00. BOTH AS TO COUNTERCLAIM AND CROSS-CLAIM a) Plaintiffs and co-defendants be ordered, jointly and severally, to reimburse answering defendant the sum ofP30,000.00 which the latter paid her counsel as and for attorneys fees for unnecessarily dragging her into this suit including the amount of P1,000.00 which she will pay her lawyer for every appearance; b) Likewise, the costs of suit and other litigation expenses. Other reliefs and remedies reasonable under the premises are similarly prayed for. 28 In its amended answer, NIC alleged that its July 30, 1977 Supplementary Lease Agreement and Contract of Lease were valid, whereas the deed of absolute sale with assumption of mortgage executed by Carmen Cruz in favor of the plaintiffs was null and void for being simulated and fraudulent. NIC and Bautista further alleged that it was exercising its option to buy the subject property now covered by TCT No. 85099;29 it, likewise, offeredP1,600,000.00 as consideration for the sale to be paid upon the execution of a deed of transfer.30 NIC and Bautista prayed that, after due proceeding, judgment be rendered in their favor, thus: WHEREFORE, premises considered, herein answering defendants respectfully prayed that the complaint be dismissed for lack of merit. On the Counterclaim: (a) that the "Contract of Lease" and the "Supplementary Lease Agreement" be declared valid, legal and binding between Carmen Vda. de Cruz and defendants Navotas and Bautista, as well as their respective heirs, successors or assigns, while the "Deed of Absolute Sale with Assumption of Mortgage" be declared null and void so far as it prejudiced and adversely affected the rights of defendants Navotas and Bautista on the portion of the property leased to it; (b) that the plaintiffs and Carmen Vda. de Cruz be ordered to accept the sum of P1,600,000.00 representing the option money for the purchase of the property subject of the lease contract specifically that which is now covered by TRANSFER CERTIFICATE OF TITLE NO. R-85099 and to execute and sign the necessary deed of conveyance therefore in favor of defendant Navotas and/or Bautista; and (c) that plaintiffs and Carmen Vda. de Cruz be ordered and condemned, jointly and severally, to pay defendants Navotas and Bautista moral and exemplary damages of not less than P80,000.00, attorneys fees and litigation expenses of not less than P50,000.00, and the costs of suit. Herein answering defendants further pray for such other reliefs and remedies available in the premises. 31 In the meantime, Carmen Cruz died intestate on November 20, 1995 at the age of 97. She was survived by the plaintiffs as her heirs.32 28

On March 7, 2000, the trial court rendered judgment in favor of the NIC and Bautista. The fallo of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered: a) Affirming the validity of the Contract of Lease and the Supplementary Lease Agreement, both dated 30 July 1977, including the provision granting defendants exclusive option to buy the subject property. b) Affirming the full rental payments made by defendants Navotas and Bautista for the lease of the subject property until the expiration thereof. c) Denying the claims for actual and compensatory, moral and exemplary damages as well as attorneys fees interposed by plaintiffs against defendants. d) Denying the claims for moral and exemplary damages interposed by defendants Navotas and Bautista against plaintiffs. e) The Deed of Absolute Sale with Assumption of Mortgage is hereby declared null and void as far as it prejudiced and is adversely affecting the rights of defendants Navotas and Bautista on the portion thereof leased to them. The plaintiffs, as heirs of defendant Cruz, are hereby ordered to accept the sum of P1,600,000.00 representing the option money for the purchase of the subject property subject of the lease contract specifically that which is now covered by Transfer Certificate of Title No. R-85099 and to execute and sign the necessary deed of conveyance therefor in favor of defendants Navotas and/or Bautista. f) Ordering plaintiffs to pay defendants Navotas and Bautista P20,000.00 by way of reasonable attorneys fees. Costs against the plaintiffs.33 The trial court declared that when defendant Carmen Cruz executed the July 30, 1977 Supplementary Lease Agreement and Contract of Lease, she was still the owner of the property; as such, NIC was not bound by the deed of sale with assumption of mortgage executed by Carmen Cruz because it was not a party thereto; and that such deed was not registered with the Office of the Register of Deeds. The trial court ruled that the plaintiffs failed to prove fraud and undue influence on Carmen Cruz and/or that NIC took advantage of her mental weakness. The RTC ruled that only Carmen Cruz had the right to rescind the contracts of lease and supplementary lease agreement. The option to buy the property granted to NIC was supported by a consideration, more specifically the P42,000.00 rental payment it made upon the execution of the said contracts. The plaintiffs appealed the decision to the CA wherein they alleged that: I THE TRIAL COURT ERRED IN HOLDING THAT APPELLEES WERE NOT BOUND BY THE DEED OF ABSOLUTE SALE OF REALTY WITH ASSUMPTION OF MORTGAGE WHICH APPELLANTS ANNOTATED AS AN ADVERSE CLAIM ON THE CERTIFICATE OF TITLE OF THE PROPERTY AS EARLY AS 30 JUNE 1977 BEFORE APPELLEES REGISTERED THE QUESTIONED LEASE CONTRACTS ON 14 SEPTEMBER 1977. 29

II THE TRIAL COURT ERRED IN COMPLETELY IGNORING THE OVERWHELMING EVIDENCE ON RECORD SHOWING THAT APPELLEES HAD ACTUAL AND CONSTRUCTIVE NOTICE OF THE SALE OF THE SUBJECT PROPERTY TO THE CRUZ CHILDREN IN 1974, AND THUS KNEW OR OUGHT TO HAVE KNOWN THAT IN EXECUTING THE QUESTIONED LEASE CONTRACTS WITH MRS. CRUZ IN 1977, THEY WERE DEALING WITH ONE WHO WAS NO LONGER THE OWNER OF THE PROPERTY WHO CAN BIND THE SAME UNDER THE QUESTIONED LEASE CONTRACTS. III THE TRIAL COURT ERRED IN HOLDING THAT THE CONSENT OF MRS. CRUZ TO THE SUBJECT LEASE CONTRACTS HAD NOT BEEN VITIATED BY UNDUE AND IMPROPER PRESSURE AND INFLUENCE ON THE PART OF APPELLEES CONSIDERING THAT: A. THE UNDISPUTED EVIDENCE ON RECORD READILY BEARS OUT THE UNDUE AND IMPROPER PRESSURE AND INFLUENCE EXERTED BY APPELLEES ON MRS. CRUZ TO OBTAIN HER CONSENT TO THE SUBJECT LEASE CONTRACTS; B. THE VERY TERMS AND CONDITIONS OF THE LEASE CONTRACTS, WHICH ARE GROSSLY DISADVANTAGEOUS TO MRS. CRUZ, POINT TO APPELLEES USE OF UNDUE PRESSURE AND INFLUENCE ON HER TO OBTAIN HER CONSENT TO THE SUBJECT LEASE CONTRACTS. IV THE TRIAL COURT ERRED IN NOT HOLDING, IN THE ALTERNATIVE, THAT THE SUBJECT LEASE CONTRACTS WERE RENDERED RESCINDED BY REASON OF APPELLEES MATERIAL BREACHES OF THE TERMS AND CONDITIONS CONSIDERING THAT: A. APPELLEES HAD ADMITTEDLY FAILED TO CONSTRUCT THE SLIPWAYS AS REQUIRED UNDER THE LEASE CONTRACT; B. THE EVIDENCE FULLY ESTABLISHES THAT APPELLEES HAVE NOT PAID THE RENTALS DUE ON THE PROPERTY SINCE 1991. V THE TRIAL COURT ERRED IN DECLARING THE DEED OF ABSOLUTE SALE WITH ASSUMPTION OF MORTGAGE AS NULL AND VOID AS AGAINST APPELLEES CONSIDERING THAT THE SAME HAS BEEN CONFIRMED AND RECOGNIZED IN SUBJECT TRANSFERS AFFECTING THE SAME PROPERTY. VI THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION CONTRACT FOR APPELLEES PURCHASE OF THE SUBJECT PROPERTY WAS SUPPORTED BY A SEPARATE CONSIDERATION AND THUS VALID AND BINDING ON APPELLANTS. 30

VII THE TRIAL COURT ERRED IN NOT HOLDING APPELLEES LIABLE TO APPELLANTS FOR ACTUAL AND COMPENSATORY DAMAGES CONSISTING OF THE REASONABLE RENTALS ON THE PROPERTY FROM 2 OCTOBER 1990 UNTIL THE RETURN THEREOF TO APPELLANTS. VIII THE TRIAL COURT ERRED IN ABSOLVING APPELLEES OF LIABILITY TO APPELLANTS FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES.34 On July 18, 2003, the CA rendered judgment granting the appeal, and reversing the decision of the RTC. The CA ruled that the appellees had constructive notice of the Deed of Sale with Assumption of Mortgage, which Carmen Cruz executed in favor of the appellants, based on the affidavit of adverse claim annotated on June 29, 1977 at the dorsal portion of TCT No. 81574. The CA declared that the adverse claim annotated at the dorsal portion of the said title continued to be effective and remained a lien until cancelled. The CA held that the option granted to the appellee NIC to purchase the property was not effective because there was no consideration therefor, apart from NICs rental payments. Besides, the CA emphasized, when Carmen Cruz executed the July 30, 1977 Supplementary Lease Agreement and Contract of Lease, she was no longer the owner of the property. The CA denied NICs motion for reconsideration of the said decision; hence, it filed the instant petition for review on certiorari, alleging that: A. THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR WHEN IT DECLARED THAT THE QUESTIONED LEASE CONTRACTS WERE NULL AND VOID, IT APPEARING IN AN ADVERSE CLAIM ANNOTATED ON THE CERTIFICATE OF TITLE OF CARMEN VDA. DE CRUZ THAT SHE WAS NO LONGER THE OWNER OF THE PROPERTY SUBJECT MATTER THEREOF WHEN THE LEASE WAS EXECUTED ON JULY 30, 1977. B. THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR WHEN IT RULED THAT THE OPTION TO BUY THE LEASED PROPERTY CONTAINED IN THE SUPPLEMENTARY LEASE CONTRACT IS NOT VALID AND BINDING FOR LACK OF CONSIDERATION AND CAPACITY OF CARMEN VDA. DE CRUZ TO CONVEY THE SAME. C. THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR WHEN IT FAILED TO RECOGNIZE A PRIOR JUDGMENT BASED ON A COMPROMISE AS A BAR TO THE PROCEEDINGS IN THIS INSTANT CASE.35 On the first issue, the petitioner avers that the adverse claim annotated at the dorsal portion of TCT No. 81574 was ineffective because the respondents failed to submit to the Register of Deeds the owners duplicate of TCT No. 81574, as mandated by Section 110 of Act No. 496. The annotation of the adverse 31

claim in the Office of the Register of Deeds on June 29, 1977 on TCT No. 81574 despite such failure to present the owners duplicate of the said title rendered such inscription ineffectual, not binding on it and Carmen Cruz. Hence, the petitioner posits, Carmen Cruz remained the lawful owner of the property. Even Carmen Cruz maintained that she was the owner of the property in her complaint in Civil Case No. C7040 filed after the execution of the deed of absolute sale with assumption of real estate mortgage; she even executed the July 30, 1977 Supplementary Lease Agreement and Contract of Lease in its favor. According to the petitioner, the said deed of sale was fictitious as, in fact, it was rejected by Carmen Cruz. For their part, the respondents aver that the petitioner had constructive notice of the said sale, based on the inscription of the affidavit of adverse claim on June 29, 1977 at the dorsal portion of TCT No. 81574. Besides, the respondents posit, Cipriano Bautista even admitted having known of the said adverse claim before the July 30, 1977 Contract of Lease and Supplementary Lease Agreement were registered in the Office of the Register of Deeds. The respondents cited the ruling of this Court in Sajonas v. Court of Appeals36 to support their claim. On the second issue, the petitioner avers that the exclusive option granted to it by Carmen Cruz under the Supplementary Lease Agreement was essentially a mutual promise to buy and sell, equivalent to a reciprocal contract under the first paragraph of Article 1479 of the New Civil Code. But in the same breath, the petitioner argues that its exclusive option to buy the property for P1,600,000.00 was supported by a consideration apart from the said amount. The petitioner insists that the P42,000.00 which it paid to Carmen Cruz as rental upon the execution of the Supplementary Lease Agreement was "advance money," which motivated Carmen Cruz to grant the option to the petitioner. On the third issue, the petitioner argues that the respondents action was barred by the order of the RTC in Civil Case No. C-7040 dismissing the complaint and complaint-in-intervention therein, based on a compromise agreement of Carmen Cruz and petitioner NIC. The Ruling of the Court The annotation of an adverse claim is a measure designed to protect the interest of a person over a part of real property, and serves as a notice and warning to third parties dealing with the said property that someone is claiming an interest over it or has a better right than the registered owner thereof. 37 On the first issue, we agree with the ruling of the CA that the petitioner had constructive notice of the Deed of Sale with Assumption of Mortgage executed by Carmen Cruz in favor of the respondents. The affidavit of adverse claim the respondents executed on June 29, 1977 was annotated at the dorsal portion of TCT No. 81574 on June 30, 1977, to wit: A review of the facts and circumstances in the case at bar reveals that at the time the Supplementary Lease Agreement and Contract of Lease both dated July 30, 1977 were executed by and between CARMEN and herein appellees, CARMEN was apparently no longer the owner of the land covered by TCT No. 81574 subject of this controversy. Obviously, appellees cannot turn a blind eye on the inscription found on CARMENs certificate of title at the time the Supplementary Lease Agreement and Contract of Lease were signed on July 30, 1977. Basic is the rule that the annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than the registered owner thereof. A subsequent transaction involving the property cannot prevail over the adverse claim which was previously annotated in the certificate of title of the property. Here, the records are obvious, the notice of adverse claim executed on June 29, 1977 was annotated on the title on June 30, 1977, that is, one month prior to the signing of the disputed lease 32

contracts on July 30, 1977. Said contracts of lease were belatedly annotated two months after its execution or on September 14, 1977 only, after appellees were allegedly warned by CARMEN that her children are desirous of the property leased in their favor. To say the least, this warning from CARMEN should have aroused appellees suspicion regarding the status of the prime property they intend to lease for another fifteen (15) years. 38 Section 110 of Act No. 496 was the law in force when Carmen Cruz executed the Deed of Sale with Assumption of Mortgage, and when the respondents executed the affidavit of adverse claim and presented it to the Register of Deeds on June 30, 1977. The petitioners reliance on the said provision is misplaced. Indeed, the Register of Deeds acted in accord with Section 110 of Act No. 496 when he inscribed the affidavit of adverse claim at the dorsal portion of TCT No. 81574, despite the non-production of the owners duplicate of TCT No. 81574 simultaneously with the presentation of the affidavit of adverse claim. The law reads: SEC. 110. Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Act for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, and a reference to the volume and page of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimants residence, and designate a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim, and the court, upon a petition of any party-in-interest, shall grant a speedy hearing upon the question of the validity of such adverse claim and shall enter such decree therein as justice and equity may require. If the claim is adjudged to be invalid, the registration shall be cancelled. If in any case the court, after notice and hearing, shall find that a claim thus registered was frivolous or vexatious, it may tax the adverse claimant double or treble costs in its discretion. Irrefragably, the Deed of Sale with Assumption of Mortgage which Carmen Cruz executed on December 31, 1974 was a voluntary act; and under Section 50 of the law, the act of registration shall be the operative act to convey and affect the land. Indeed, Section 55 of Act No. 496 provides that the presentation of the owners duplicate certificate of title for the registration of any voluntary instrument is required: SEC. 55. No new certificate of title shall be entered, no memorandum shall be made upon any certificate of title by the register of deeds, in pursuance of any deed or other voluntary instrument, unless the owners duplicate certificate is presented for such indorsement, except in cases expressly provided for in this Act, or upon the order of the court for cause shown; and whenever such order is made, a memorandum thereof shall be entered upon the new certificate of title and upon the owners duplicate: Provided, however, That in case the mortgagee refuses or fails to deliver within a reasonable time to the register of deeds the duplicate or copy of the certificate of title surrendered by the owner, after advice by said officer, in order to enable him to register or annotate thereon another real right acquired by said owner, the record or annotation made on the certificate in the register book shall be valid for all legal purposes. The production of the owners duplicate certificate whenever any voluntary instrument is presented for registration shall be conclusive authority from the registered owner to the register of deeds to enter a new certificate or to make a memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith: Provided, however, That in all cases of 33

registration procured by fraud the owner may pursue all his legal and equitable remedies against the parties to such fraud, without prejudice, however, to the rights of any innocent holder for value of a certificate of title: And provided, further,That after the transcription of the decree of registration under this Act procured by the presentation of a forged duplicate certificate, or of a forged deed or other instrument, shall be null and void. In case of the loss or theft of an owners duplicate certificate, notice shall be sent by the owner or by someone in his behalf to the register of deeds of the province in which the land lies as soon as the loss or theft is discovered. This Court explained the rationale of the requirement in L.P. Leviste & Company, Inc. v. Noblejas:39 The basis of respondent Villanuevas adverse claim was an agreement to sell executed in her favor by Garcia Realty. An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As such voluntary instrument, Section 50 of Act No. 496 expressly provides that the act of registration shall be the operative act to convey and affect the land. And Section 55 of the same Act requires the presentation of the owners duplicate certificate of title for the registration of any deed or voluntary instrument. As the agreement to sell involves an interest less than an estate in fee simple, the same should have been registered by filing it with the Register of Deeds who, in turn, makes a brief memorandum thereof upon the original and owners duplicate certificate of title. The reason for requiring the production of the owners duplicate certificate in the registration of a voluntary instrument is that, being a willful act of the registered owner, it is to be presumed that he is interested in registering the instrument and would willingly surrender, present or produce his duplicate certificate of title to the Register of Deeds in order to accomplish such registration. 40 However, in this case, Carmen Cruz had ordered the CBC, the mortgagee and custodian of the owners duplicate of TCT No. 81574, not to surrender the owners duplicate of the said title to the Register of Deeds. The latter thus acted in accord with law when the affidavit of adverse claim was inscribed at the dorsal portion of TCT No. 81574 on June 30, 1977. Indeed, this Court ruled in L.P. Leviste & Company, Inc. v. Noblejas41 that: However, where the owner refuses to surrender the duplicate certificate for the annotation of the voluntary instrument, the grantee may file with the Register of Deeds a statement setting forth his adverse claim, as provided for in Section 110 of Act No. 496. In such a case, the annotation of the instrument upon the entry book is sufficient to affect the real estate to which it relates, although Section 72 of Act No. 496 imposes upon the Register of Deeds the duty to require the production by the Registered owner of his duplicate certificate for the inscription of the adverse claim. The annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not, otherwise, provided for by the Land Registration Act, and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than the registered owner thereof. 42 Moreover, on June 29, 1977, the balance of Mariano Cruz and Gabriel Cruzs account with the CBC had already been paid, presumably by Mariano Cruz; and the CBC had executed a cancellation of real estate mortgage. However, the said deed was inexplicably not presented to the Register of Deeds for registration. The general rule is that a person dealing with registered land is not required to go behind the register to determine the condition of the property. However, such person is charged with notice of the burden on the property which is noted on the face of the register or certificate of title. 43 A person who deals with registered land is bound by the liens and encumbrances including adverse claim annotated therein. 44

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In the present action, the petitioner caused the annotation of the July 30, 1977 Supplementary Lease Agreement and Contract of Sale only on September 14, 1977, long after the annotation of the respondents adverse claim at the dorsal portion of TCT No. 81574 on June 30, 1977. Thus, as of that date, the petitioner had constructive knowledge of the Deed of Sale with Assumption of Mortgage Carmen Cruz executed on December 31, 1974 in favor of her children. Even before July 30, 1977, the petitioner had knowledge that Carmen Cruz was no longer the owner of the property, and had no more right to execute the July 30, 1977 Supplementary Lease Agreement and Contract of Lease. The registration of the said lease contracts was of no moment, since it is understood to be without prejudice to the better rights of third parties.45 While it is true that in the complaint and amended complaint in Civil Case No. C-7040, Carmen Cruz alleged that she was the owner-lessor of the property, such allegation cannot detract from the fact that the property had already been registered under the names of the respondents under TCT No. 11272, later cancelled by TCT No. R-11830. The petitioner was informed by the respondents that they were the registered owners of the property. Moreover, the already aging Carmen Cruz and her children had a domestic quarrel, and animosity that caused her to go into seclusion; she thought then that her children had abandoned her. The attendant circumstances must have influenced Carmen Cruz to erroneously allege in her complaint that she was the owner of the property.46 Even then, on February 23, 1988, Carmen Cruz executed an Affidavit in which she swore that she had sold the property to her children: 3. That among the parcels of land which I have sold was that parcel located in Barrio Almacen, Navotas, Rizal, then covered by Transfer Certificate of Title No. 81574 of the Register of Deeds of Rizal in favor of my children Serafin D. Cruz, Mariano D. Cruz, Rogelio D. Cruz, Sr. Carmencita Cruz and Sr. Mary Carmellas as vendees, with the agreement that the then existing mortgage with the China Banking Corporation shall be assumed and settled by said vendees, as embodied in a document entitled "Deed of Absolute Sale of Realty with Assumption of Mortgage," which I executed on December 31, 1974 and entered in the notarial register of Notary Public P. Dario Guevarra, Jr. as Doc. No. 198, Page No. 41, Book No. 198, Series of 1975.47 7. That in view of these developments and considering my advanced age and present physical condition and now realizing that I may have been unduly taken advantage of by some parties to promote their own selfish interests, I now hereby execute this sworn statement and hereby affirm the validity of the sale of said parcel of land covered by TCT No. 81574 of the Register of Deeds of Rizal and hereby state that said sale was entered into by me of my own free will and for valuable consideration. 48 In her answer to the respondents amended complaint in the trial court, Carmen Cruz reiterated that she had sold the property to her children: 2.5. On 31 December 1974, she sold the subject property to the plaintiffs for valuable consideration, free from all liens and encumbrances and claim of third parties, except that pertaining to a real estate mortgage with China Banking Corporation as evidenced by a notarized "Deed of Absolute Sale of Realty with Assumption of Mortgage" dated 31 December 1974, a photocopy of which is hereto attached and made an integral part hereof as Annex "B";

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2.6. After she sold the subject lot to the plaintiffs herein, the latter tried to effect the registration and annotation of the said transfer with the Registry of Deeds of Rizal sometime in 28 June 1977 but China Banking Corporation, the mortgagee, through its legal counsel, Atty. Arsenio Sy Santos, refused to release the title thus the delay in the registration of the said "Deed of Sale with Assumption of Mortgage" which she executed in favor of the plaintiffs involving the subject parcel of land with the Registry of Deeds; 2.7. In order to protect their rights and interests over the subject property, the plaintiffs, through their appointed attorney-in-fact, Mariano A. Cruz, annotated an adverse claim on the title which was then still under answering defendants name, as a cautionary notice to third persons and the whole world that said title has been transferred by answering defendant in favor of the plaintiffs herein and that any voluntary dealing thereon shall be considered subject to the said adverse claim. 49 Carmen Cruz also alleged, in her amended complaint in Civil Case No. C-7040, that the July 30, 1977 Contract of Lease and Supplementary Lease Agreement she executed in favor of the petitioner were fraudulent.50 In her answer to the amended complaint in the court a quo, Carmen Cruz alleged that the defendant therein (now the petitioner) was granted an "exclusive option to buy the leased property at the ridiculously low price ofP1,600,000.00, payable over an unspecified period an option unsupported by any consideration hence, null and void."51 She elaborated that: 15. That the above-quoted provision is not only a foolery, trickery and a product of deception because the exercise of the "option" is not fixed the same maybe conveniently exercised by the defendant at anytime up to the year 2005. Even the fixing of the sum worded as "flat sum" of One Million Six Hundred Thousand the valuation fifteen (15) years, hence, (2005) without providing for the "inflation and deflation" of the currency is grossly prejudicial and unfair. Moreover, the provision which states that if and when defendants finally decides to exercise their option during the lifetime of the Lessor, the lessee will continue paying the rentals is not only illogical, untrue and deceptive, the same being used mainly as a ploy to win the sympathy and titillate the ego of the old woman. It is rather unbelievable that being already the owner, defendants will still pay the rentals. This, to our mind, is the height of hyprocracy.52 On the second issue, we reject the petitioners contention that the exclusive option granted to it by Carmen Cruz under the Supplementary Lease Agreement is essentially a mutual promise to buy and sell, equivalent to a reciprocal contract under the first paragraph of Article 1479 of the New Civil Code, which reads: ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. In the first place, the petitioner insisted in its pleadings in the court a quo that under the Supplementary Lease Agreement and Contract of Lease, it was granted the exclusive option to purchase the property leased. The petitioner maintained its theory of the case in the CA. The petitioner cannot change its theory, and claim this time that it and Carmen Cruz entered into a promise to buy and sell the property leased. 53 Considering that Carmen Cruz was no longer the owner of the property when she executed the July 30, 1977 Supplementary Lease Agreement and Contract of Lease, and that the respondents had acquired 36

ownership over the property as of December 31, 1974 (which the petitioner had constructive knowledge of since June 30, 1977), the petitioners claim that it had the option to buy the property or to compel the respondents to sell the property to it has no legal and factual basis. Even after a careful study of the merits of the petition, the Court finds that the petitioners claim is untenable. The relevant portions of the Supplementary Lease Agreement read: 4. The LESSEE is hereby granted an exclusive option to buy the property including all improvements already made by the LESSEE (slipways and camarines) subject matter of this contract comprising SIX THOUSAND NINE HUNDRED FORTY-NINE Point FIVE Square Meters (6,949.5) which is one-half portion of the area covered by TCT No. 81574 and same property subject matter of this contract should also be equally divided with one-half frontage along M. Naval Street and along the Navotas River Bank shoreline during the period of the lease. The price of the property is agreed to be fixed for the duration of the Option to Buy at a flat sum of ONE MILLION SIX HUNDRED THOUSAND PESOS (P1,600,000.00), Philippine Currency, payable over a period to be mutually agreed upon. Should the LESSEE exercise the option to buy during the lifetime of the LESSOR, the LESSEE will continue to pay the monthly rental to the LESSOR during her lifetime. 5. The LESSEE shall pay to the LESSOR the sum of FORTY-TWO THOUSAND (P42,000.00) PESOS upon signing of this contract as consideration thereof, to be applied as against the rental for the period from October 1, 1990 to September 30, 1991.54 It must be stressed that an option contract is a contract granting a privilege to buy or sell within an agreed time and at a determined price. Such a contract is a separate and distinct contract from the time the parties may enter into upon the construction of the option.55 In Carceller v. Court of Appeals,56 the Court held that an option contract is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. The Court further stated that: It binds the party who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct from the contract which the parties may enter into upon the consummation of the option. 57 It is only when the option is exercised may a sale be perfected. 58 An option contract needs to be supported by a separate consideration. The Court defined consideration for an option in Bible Baptist Church v. Court of Appeals,59 as follows: The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause. In the present case, there was no given period for the petitioner to exercise its option; it had yet to be determined and fixed at a future time by the parties, subsequent to the execution of the Supplementary Lease Agreement. There was, likewise, no consideration for the option. The amount of P42,000.00 paid by the petitioner to Carmen Cruz on July 30, 1977 was payment for rentals from October 1, 1990 to September 30, 1991, and not as a consideration for the option granted to the petitioner.

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On the third issue, the respondents action in the court a quo was not barred by the order of the RTC dismissing the complaint of Carmen Cruz, and the respondents complaint-in-intervention in Civil Case No. 5114. Contrary to the petitioners claim, Carmen Cruz (the plaintiff therein) and the petitioner (the defendant therein) did not enter into any compromise agreement in the said case. Moreover, the dismissal of the complaint, and, consequently, the respondents complaint-in-intervention was upon motion of plaintiff Carmen Cruz and without prejudice. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The Decision of the Court of Appeals in CA-G.R. CV No. 69818 is AFFIRMED. Costs against the petitioner. SO ORDERED.

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