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G.R. No. 163763

THIRDDIVISION

MALAYANREALTY,INC.
representedbyALBERTOC.DY.,
Petitioner,

versus

UYHANYONG,
Respondent.

G.R.No.163763

Present:

QUISUMBING,J.,Chairperson,
CARPIO,
CARPIOMORALES,
TINGA,and
VELASCO,JR.,JJ.

Promulgated:

November10,2006

xx

DECISION

CARPIOMORALES,J.:

MalayanRealty,Inc.(Malayan),istheownerofanapartmentunitknownas3013InteriorNo.
90(theproperty),locatedatNagtahanStreet,Sampaloc,Manila.

In1958,MalayanenteredintoaverballeasecontractwithUyHanYong(Uy)overtheproperty
[1]
[2]
atamonthlyrentalofP262.00. Themonthlyrentalwasincreasedyearly starting1989,and
[3]
by2001,themonthlyrentalwasP4,671.65.

[4]
On July 17, 2001, Malayan sent Uy a written notice informing him that the lease contract
wouldnolongerberenewedorextendeduponitsexpirationonAugust31,2001,andaskinghim
tovacateandturnoverthepossessionofthepropertywithinfivedaysfromAugust31,2001,or
[5]

onSeptember5,2001.

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Despite Uys receipt of the notice on June 18, 2001, he refused to vacate the property,
promptingMalayantofilebeforetheMetropolitanTrialCourt(MeTC)ofManila a complaint
forejectment,docketedasCivilCaseNo.171256,andwasraffledtoBranch3thereof.

Initscomplaint,MalayanprayedforthecourttoorderUyandallotherpersonsclaiming
possession under him to vacate the property, to pay P9,000 as fair and reasonable monthly
compensationforitsusefromSeptember1,2001untilitspossessionisturnedovertoit,andto
[6]
payP20,000asattorneysfeesaswellascostsofsuit.

Thetrialcourt,notingthattherewasnoshowingthattheleasecontractwasonamonthly
basisandthatitwasforadefiniteperiod,giventhatUyhasbeenoccupyingtheleasedproperty
[7]
continuously for more than 40 years, held that Uy could not be ejected on the ground of
[8]
[9]
terminationofthecontract. Itaccordinglydismissed Malayanscomplaint.

[10]
Aggrieved,MalayanappealedtotheRegionalTrialCourt(RTC)which,byDecision
datedNovember22,2002,setasidethejudgmentoftheMeTC.OnthebasisofArticle1687of
[11]
theNewCivilCode,
theRTCextendedtheleasecontractforaperiodoffiveyears,taking
intoconsiderationthefactthatUywas75yearsoldandhadlivedintheleasedpropertyformore
[12]
than half of his life.
And the RTC, finding that Malayan acted arbitrarily and with
vindictivenessininstitutingthecomplaint,orderedMalayantopayP100,000asmoraldamages,
[13]

P100,000asexemplarydamages,andP30,000asattorneysfees.

[14]
Malayanfiledamotionforreconsideration,
arguingthatsinceUydidnotappealthe
MeTCdecision,theRTCerredingrantinghimaffirmativereliefbyextendingtheperiodoflease
andawardinghimdamagesandattorneysfees.

ActingonMalayansMotionforReconsideration,theRTCdeletedtheawardofdamages
[15]
toUybutretaineditsrulingextendingtheleaseperiodforfiveyears.

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Still dissatisfied, Malayan elevated the case to the Court of Appeals (CA), before which it
contendedthattheRTChadnolegalorfactualbasisforextendingtheleasecontractasthesame
wasnotpleadedbyUyinhiscounterclaimnorsoughtitasarelief.

[16]
By Decision
of February 19, 2004, the CA modified the RTC decision by shortening the
extension of the lease contract to one year from the finality of the decision. And the CA
increasedtherentalrateat10%perannumstartingSeptember6,2002,viz:

x x x [P]etitioner also prayed that respondent herein be ordered to pay a rental of P9,000.00 a
month.Thecourthadauthoritytofixthereasonablevalueforsuchuseandoccupancyfromthe
expirationofthecontractofleasebecauseitissettledthattherentalstipulatedinthecontractof
leasethathasexpiredorterminatedmaynolongerbethe
reasonablevaluefortheuseandoccupationofthepremisesasaresultorbyreasonofchangeor
rise in values (T & C Development Corp. vs. Court of Appeals, 317 SCRA 476). Taking into
accountthatonSeptember18,2001,thedatewhenpetitionerfiledthecomplaintforejectment,
theapplicablelawareRANos.7644and8437,whichextendedtheperiodofrentcontrolfrom
1993to1997andthenfrom1998to2001,respectively.
xxxx

Asthemaximumincreaseallowedis15%,weholdtograntanincreaseof10%perannum,under
thecircumstancesofthiscase.Hence,theincreaseshouldbeasfollows:

Sept.6,2001Sept.6,2002P5,138.82
Sept.7,2002Sept.7,2003P5,652.70
Sept.8,2003onwardsP6,217.95

Thus,weherebygrantthesame,butonlytotheamounthereinabovestatedconsideringthatthe
originalrateisP4,671.65.xxx(Underscoringintheoriginal)

ThusthedispositiveportionoftheCAdecisionread:

WHEREFORE,premisesconsidered,theDecisiondatedNovember22,2002andtheOrderdated
January24,2003oftheRegionalTrialCourtofManila,NationalCapitalJudicialRegion,Branch
40,inCivilCaseNo.02103958,areherebyMODIFIED,byshorteningtheextensionofleaseto
a period of only one (1) year from finality of this decision and fixing the rental to the rate as
hereinabove provided, from the date of expiration of lease (5 days after August 31, 2001) on
September6,2001.Inallotherrespects,thepetitionisdenied.Nopronouncementastocosts.

[17]
ThepartiesrespectivemotionsforreconsiderationweredeniedbytheCAbyResolution
of
May28,2004.

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Malayan (hereafter petitioner) thereupon filed the present petition for review on certiorari,
arguingthattheCAerredingrantingaoneyearextensionoftheleasereckonedfromthefinality
[18]
ofthedecision.

Petitioner asserts that an extension of the period of a lease may be sought by the tenant
before, and not after the termination of the lease and that Uy (hereafter respondent) had
sufficient time to request for extension, given that the notice of termination of the lease was
serveduponhimmorethan30daysbeforeitseffectivity,butthatrespondentdidnotsorequest
[19]
evenafterthecomplaintwasfiledincourt.

Petitioner thus maintains that no equitable reason justifies respondents continued

possession of the property for more than four years from the time the complaint for ejectment
[20]
wasfiled.

Respondent, on the other hand, faults the CA to have erred in ruling that the lease was
consideredtobeonamonthtomonthbasis,andthatevenifArticle1687oftheNewCivilCode
isapplicable,theCAerredinshorteningtheextensionoftheleasetooneyearinsteadoffive
[21]
years as adjudged by the RTC.
And it faults the CA to have abused its discretion in
[22]
increasingtherentalat10%perannum.

UnderArticle1687oftheNewCivilCodewhichreads:

Article1687.If the period for the lease has not been fixed, it is understood to be from year to
year,iftherentagreeduponisannualfrommonthtomonth,ifitismonthlyfromweektoweek,
iftherentisweeklyandfromdaytoday,iftherentistobepaiddaily.However,eventhougha
monthlyrentispaid,andnoperiodfortheleasehasbeenset,thecourtsmayfixalongertermfor
theleaseafterthelesseehasoccupiedthepremisesforoveroneyear.xxx,

iftheperiodofaleasecontracthasnotbeenspecifiedbytheparties,itisunderstoodtobefrom
monthtomonth,iftherentagreeduponismonthly.Theleasecontractthusexpiresattheendof
eachmonth,unlesspriorthereto,theextensionofsaidtermhasbeensoughtbyappropriateaction
[23]
andjudgmentiseventuallyrenderedthereingrantingtherelief.
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Inthecaseatbar,theleaseperiodwasnotagreeduponbytheparties.Rentalwaspaidmonthly,
andrespondenthasbeenoccupyingthepremisessince1958. As earlier stated, a written notice
wasserveduponrespondentonJanuary17,2001terminatingtheleaseeffectiveAugust31,2001.
As respondent was notified of the expiration of the lease, effectively his right to stay in the
[24]
premiseshadcometoanendonAugust31,2001.

The2ndparagraphofArticle1687provides,however,thatintheeventthatthelesseehas
occupiedtheleasedpremisesforoverayear,thecourtsmayfixalongertermforthelease.

The power of the courts to establish a grace period is potestative or discretionary,

dependingontheparticularcircumstancesofthecase.Thus,alongertermmaybegrantedwhere
equitiescomeintoplay,andmaybedeniedwherenoneappears,alwayswithduedeferencetothe
[25]
partiesfreedomtocontract.

Whereapetitionerhasbeendeprivedofitspossessionovertheleasedpremisesforsolong
atime,anditisshownthat,indeed,therespondentwastherecipientofsubstantialbenefitswhile
the petitioner was unable to have the full use and enjoyment of a considerable portion of its
[26]
property,suchmilitatesagainstfurtherdeprivationbyfixingaperiodofextension.

[27]
Thus, in De Vera v. Court of Appeals,
this Court found that the lessees continued
possession of the property for more than five years from the supposed expiration of the lease
sufficedasanextensionoftheperiod.

Inthepresentcase,respondenthasremainedinpossessionofthepropertyfromthetime
thecomplaintforejectmentwasfiledonSeptember18,2001uptothepresenttime.Effectively,
respondents lease has been extended for more than five years, which time is, under the
circumstances,deemedsufficientasanextensionandforhimtofindanotherplacetostay.

As for respondents assigned errors reflected above, his petition for review, which was
docketed as G.R. No. 163652, having been dismissed and the reconsideration of the dismissal
[28]
having been denied with finality by Resolution of November 8, 2004,
the decision of the
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CourtofAppealswas,astohim,finalandexecutory.Atallevents,hiscontentionthattheCA
erred in increasing the rental from September 6, 2001 onwards at 10% per annum is bereft of
merit.

[29]
InLimcayv.CourtofAppeals,
whichincidentallywasacomplaintforejectmentfiled
byhereinpetitioneragainstalesseeofoneofitsapartmentslocatedalsointhesameaddressas
thatofthepropertysubjectofthiscase,theCourtupheldtheRTCsauthoritytofixthereasonable
[30]
valuefortheuseandoccupationofthepremisesfromtheexpirationofthecontractoflease.

That the rental stipulated in the contract of lease that has expired or terminated may no
longerbethereasonablevaluefortheuseandoccupationofthepremisesasaresultorbythe
[31]
reasonofthechangesorriseinvaluesissettled.

RespondenthimselfadmittedinhisAnswertotheComplaintthattherentalwasincreased
[32]
yearlysince1989.
Headmittedtooinhispositionpaperthatwhilepetitioneronlycollected
the amount of P4,671.65 as monthly rental, other tenants were constrained to pay P8,000 to
[33]
P9,000 a month,
which latter amount was the amount prayed for by petitioner in his
complaintagainstrespondentbeforetheMeTC.

Giventhecircumstancesattendanttothiscase,thisCourtfindsthattheCAsincreaseofthe
rentalat10%perannumisfairandjust,andisareasonablevaluationofthecompensationdue
petitionerfortheuseandoccupationofitspropertyfromtheexpirationofthecontractoflease
untiltheturnoverbyrespondentofitspossession.

As the lease contract expired on August 30, 2001, petitioner is entitled to the 10% per
annumincreaseinrentalssinceSeptember1,2001,notonSeptember6,2001asheldbytheCA.
Hence,themonthlyrentalofthepropertyinthesucceedingyearsshouldbeasfollows:

September2001toAugust2002P5,138.82
September2002toAugust2003P5,652.70
September2003toAugust2004P6,217.97
September2004toAugust2005P6,839.77
September2005toAugust2006P7,523.74
September2006onwardsP8,276.11

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WHEREFORE,thepetitionisGRANTED.Respondent,UyHanYong,andallpersons
claiming rights under him are ORDERED to immediately vacate and surrender possession of
3013InteriorNo.90,Nagtahan,St.,SampalocManila,andtopaymonthlyrentalsintheamount
ofP5,138.82fromSeptember2001toAugust2002P5,652.70fromSeptember2002toAugust
2003 P6,217.97 from September 2003 to August 2004 P6,839.77 from September 2004 to
August2005P7,523.74fromSeptember2005toAugust2006andP8,276.11fromSeptember
2006 until respondent finally vacates and surrenders possession of the property to petitioner,
MalayanRealty,Inc.

Costsagainstrespondent.

SOORDERED.

CONCHITACARPIOMORALES
AssociateJustice

WECONCUR:

ANTONIOT.CARPIO
AssociateJustice

LEONARDOA.QUISUMBING
AssociateJustice
Chairperson

DANTEO.TINGA
AssociateJustice

PRESBITEROJ.VELASCO,JR.
AssociateJustice

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ATTESTATION

IattestthattheconclusionsintheaboveDecisionwerereachedinconsultationbeforethecase
wasassignedtothewriteroftheopinionoftheCourtsDivision.

LEONARDOA.QUISUMBING
AssociateJustice
Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision were reached in
consultationbeforethecasewasassignedtothewriteroftheopinionoftheCourtsDivision.

ARTEMIOV.PANGANIBAN
ChiefJustice

[1]
Records,p.56.
[2]
Id.at11.
[3]
Ibid.
[4]
Id.at7.
[5]
Ibid.
[6]
Id.at45.
[7]
Id.at116.
[8]
Ibid.
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[9]
Id.at115117.
[10]
Id.at177181.
[11]
Id.at179181.
[12]
Id.at178.
[13]
Id.at181.
[14]
Id.at183202.
[15]
Id.at240.
[16]
CA rollo, pp. 319332. Penned by Associate Justice Mercedes GozoDadole and concurred by Associate Justices Eugenio S.
LabitoriaandRosmariD.Carandang.
[17]
Id.at352.
[18]
Rollo,p.14.
[19]
Id.at20.
[20]
Id.at172.
[21]
Id.at137.
[22]
Id.at142143.
[23]
Yapv.CourtofAppeals,G.R.No.140249,March6,2001,353SCRA714,720.
[24]
DeVerav.CourtofAppeals,329Phil.175,179(1996)Dulav.Maravilla,G.R.No.134267,May9,2005,458SCRA249,258.
[25]
LaJolla,Inc.,v.CourtofAppeals,411Phil.606,614615(2001).
[26]
Id.at614.
[27]
329Phil.175,181(1996).
[28]
Rollo,p.154.
[29]
G.R.No.78161,October21,1992,215SCRA1.
[30]
Id.at9.
[31]
Ibid.
[32]
Records,p.11.
[33]
Id.at57.

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