G.R. No.

L-7637

December 29, 1956

INMA ROHDE SHOTWELL, assisted by her husband, ANSELMO M. SHOTWELL, petitioner, vs. MANILA MOTOR CO., INC. and CHARTERED BANK OF INDIA, AUSTRALIA AND CHINA, respondents. Nicolas Belmonte and Leonardo Abola for petitioner. Allison J. Gibbs and Zafra, Lara, De Leon and Veneracion for the respondent Manila Motors Co., Inc. William H, Quasha and Associates for the respondent Chartered Bank of India, Australia and China.

PADILLA, J.: This is an appeal by certiorari under Rule 46 from a judgment of the Court of Appeals. On 8 November 1948 Inma Rohde Shotwell, successor-in-interest of the late William H. Rohde, the lessor, sued the lessee and the assignee in the Court of First Instance of Manila to recover from them allegedly due and unpaid rentals from 1 January 1942 to 30 November 1945. After hearing, the Court rendered judgment . . . in favor of the plaintiff and against the defendant Manila Motor Co., Inc., ordering the latter to pay the former the sum of P175.00 (rental for the month of January 1945), with interest at the rate of six per centum per annum from the date of the filing of the complaint until fully paid; and declaring the contract of lease terminated as of the destruction of the buildings in February, 1945. The case against the defendant Chartered Bank of Australia and China is dismissed for lack of evidence. The payment of the rental due from the defendant Manila Motor Co., Inc., is suspended until the Moratorium Law has been lifted, unless the said defendant waives its right under said Law. With costs against the above named defendant. From this judgment the plaintiff appealed to the Court of Appeals. The judgment appealed from was affirmed, . . . with the only modification that the payment of the amount of P175.00 as rental of the property involved in this litigation for the month of January, 1945, is not suspended and should not be made as soon as this decision becomes final. The costs are taxed against the appellants. The findings of the Court of appeals are, as follows: . . . on September 1, 1937, William H. Rhode, now deceased, father of the plaintiff Inma Rohde Shotwell, and the Manila Motor Co., Inc., entered into a contract of lease for 14 years, covering three parcels of land together with all buildings and improvements thereon, situated on Ongpin, Manila, the buildings fronting on Tambakan alley (Exh. A same as Exh. 10), at a monthly rental of P1,050.00 for the first four years and P1,100.00 for the succeeding years. Two months and five days later, or on November 6, 1937, the Manila Motor Co., Inc. assigned, with the express consent of William H. Rohde (Exh. B), said lease to the defendant Chartered Bank of India, Australia and China under the following reservations:

1. That this assignment does not carry with it any of the liabilities and obligations undertaken and assumed by the Manila Motor Co., Inc. in said lease; but the Chartered Bank of India, Australia and China has the option at any time to undertake and assume the said liabilities and obligations upon written notice by registered mail to the lessor, William H. Rohde; 2. That this assignment shall in no way absolve or release the Manila Motor Co., Inc. from the obligations and liabilities it has contracted in said lease. (Exhibit B) There is no denial that the defendant Chartered Bank of India, Australia and China never exercised its option on said lease, and in accordance with paragraphs 1 and 2 of the contract aforequoted, We declare that the assignment thereof was made just to benefit said defendant Bank and not to work against it unless said Bank would have exercised the option. Consequently, the dismissal of the complaint with regard to this defendant was proper and is hereby affirmed. As to the other defendant, the Manila Motor Co., Inc., the questions at issue to be determined are whether or not (1) the lease contract (Exh. A) was novated; (2) the destruction of the building of the leased property during the battle of liberation in february of 1945, caused the termination of the lease; (3) the Executive Order on moratorium still affects the payment of any of the rentals that might be due the plaintiffs; and (4) there is any balance of the accumulated rentals of the premises that the Manila Motor Co., Inc. is bound to pay to the plaintiffs, with interest thereon from the filing of the action.

As held by the court a quo, "the main portion of the leased premises was sealed by the Japanese military forces, such that the defendant Manila Motor Co., Inc., was not able to continue engaging in automobile business during the Japanese occupation, and that the said main portion of the ground floor was occupied by the Central Garage which belong to the then puppet government. A small portion of the ground floor was occupied by the Manila Food Industry which was owned and operated by the defendant Manila Motor Co., Inc., through its president, Mr. Bachrach." It is part of the history of said occupation days that the rentals of all buildings in general were reduced at least to half, and the amount of P125.00 or P175.00 paid monthly by the defendant Manila Motor Co., Inc. must have been accepted by the lessor in full payment of said rentals, not only because the reduction thereof was in consonance with the general policy on rentals then prevailing, but because the lessor was unable to maintain the lessee in its right to occupy without hindrance the whole premises leased to the latter. Anyway, the plaintiffs have not proved that defendant Manila Motor Co., Inc. and plaintiff's predecessor in interest, or Isabel Salgado de Rohde, agreed that the reduced monthly rental of P125.00 or P175.00 that said defendant continued paying during the Japanese occupation was only in partial satisfaction of the monthly rental stipulated in the contract (Exhibit A), with the understanding that the balance would be fully liquidated after the war. It has been stated before that the buildings on the property leased were totally destroyed in the battle for the liberation of Manila in February of 1945, and the next question for Us to pass upon and decide is whether such destruction caused the termination of the lease. The old civil Code prescribes:

ART. 1543. In the lease of things one of the parties thereto binds himself to give to the other the enjoyment or use of a thing for a definite period and for a certain price, and two of the duties or obligations of the lessor are; 2. To make thereon, during the lease, all repairs necessary in order to keep it in serviceable condition for the purpose for which it was intended; and 3. To maintain the lessee in the peaceful enjoyment of the lease during the entire term of the contract. (Art. 1554.).lawphil.net When the contract of lease (Exhibit A) was entered into between William H. Rohde and the Manila Motor Co., Inc., there were already buildings on the land, and We believe with the trial judge that said defendant would not have entered into the contract were it not for the suitableness of those buildings which it could and did use in its automobile business, and that the conditions of the lease would have been different if there were no such buildings thereon. As the records shows, the reason on the part of the Manila Motor Co., Inc. to enter into that contract on September 1, 1937, was "that these buildings were substantial and the improvements were suitable for the business in which we were going into, selling and repairing automobiles" (t.s.n. p. 908). It is true that according to the terms of the contract (Exhibit A), the lessee had the right to make alterations and improvements in the building now situated on the above described premises, as it may desire and replace all or any of said buildings with a new building or buildings of equal or greater value, and that all the repairs and renewals shall be for the account of the leasee which shall keep the premises in reasonable good repair, but this covenant which certainly were made for the benefit of the Manila Motor Co., Inc., do not and could not bind the lease to make any renewals if the latter did not so desire. Moreover, the repairs and the renewals referred to in the contract were those to be carried out before the expiration of the term or other determination of the lease, which were to become the property of the lessor, and it certainly would be most unfair to give any other interpretation to the contract, for it would be tantamount to transferring the losses of the owner and the lessor for the destruction of the buildings, which he or his successors-in-interest could have claimed from the War damage Commission, to the shoulders of the lessee that was not at fault in the devastation caused by the ravages of war, If under the obligation "to make all repairs necessary in order to keep the property leased in serviceable condition for the purpose for which it was intended" (Art. 1554, No. 2, of the Civil Code), the lessor cannot be compelled to rebuild the property destroyed by fortuitous event (Lizares vs. Hernaez, 40 Phil., 981), We do not see any reason why the lessee could be obliged to make the renewal, replacement or rebuilding of the improvements for the benefit of the lessor in order to make the lease continue in operation under circumstances that might be disadvantageous to the lessee, when the contract itself left that reconstruction or replacement at the will of the latter. Article 1568 of the old Civil Code prescribes that: If the thing leased should be lost of either the contracting parties fails to comply with his undertaking, the provisions of Articles 1182 and 1183 and of Articles 1101 and 1124 respectively shall be observed,

and Article 1182 provides that: An obligation which consists in the delivery of a determinate thing shall be extinguished if such thing should be lost or destroyed without fault on the part of the debtor and before he is in default (mora). In this connection appellees' counsel quotes the following from Manresa: "There is no room for doubt that the loss of the thing extinguishes the lease contract. . ." and that "by loss of the thing shall be understood not only its material and complete destruction, but also such essential change of condition or state that renders it unfit for the purpose to which it was being used" (Translation-Appellees' brief, p. 111). Such being the case, we cannot declare that the lower court committed the second of the errors assigned to it, and, consequently, the defendantappellee, the Manila Motor Co., Inc., cannot be held liable for any rents after the liberation of the City of Manila, or from February 1 to November 30, 1945, as pretended by appellees. The part of the decision that suspends the payment of the rental due from the defendant Manila Motor Co., Inc., until the moratorium would be lifted, unless the said defendant waives its right under such law, was in accordance with previous decisions of the Supreme Court, but the doctrine has been recently changed (Royal L. Rutter vs. Placido J. Esteban SC G. R. L3708, May 18, 1953, and other decisions that followed), and there is now no reason for such suspension. Defendant-appellee Manila Motor Co., Inc. is, therefore, in duty bound to pay the sum of P175.00 as rental of the premises for the month of January, 1945. Anyway, said defendant in its answer admits its obligation to pay that rental for said month. The Court of Appeals found that there were buildings on the land when the contract of lease (Exhibit A) was entered into between William H. Rohde and the Manila Motor Co. Inc., and that the reason the latter entered into such leased contract was "that these buildings were substantial and the improvements were suitable for the business in which we are going into, selling and repairing automobiles;" and both the trial and appellate Courts are of the opinion "that said defendant would not have entered into the contract were it not for the suitableness of those buildings which it could and did use in its automobile business, and that the conditions of the lease would have been different if there were no such buildings thereon." The destruction of the buildings during the battle for liberation in February 1945 terminated the lease contract. Article 1568 of the Civil Code provides: If the thing leased should be lost or either of the contracting parties fails to comply with his undertaking, the provisions of Articles 1182 and 1183 and of Articles 1101 and 1124 respectively shall be observed. Article 1182 of the same Code provides: An obligation which consists in the delivery of a determinate thing shall be extinguished if such thing should be lost or destroyed without fault on the part of the debtor and before he is in default (mora).

The petitioner contends that the destruction of the buildings has not terminated the lease contract because not only the buildings but also the land on which they had been erected formed part of the consideration or causa of the contract of lease. But the buildings and the land constitute an invisible unit and the destruction of the buildings has extinguished the obligation or terminated the lease contract. The stipulation on the rebuilding of the destroyed improvements is potestative on the part of the lessee. The latter, is not bound to do so. The Court of Appeals found that in view of the sealing of a large part of the leased premises by the Japanese military forces; occupation of the large part of the ground floor by the Central Garage owned and operated by then puppet Government, a small part only of the ground floor having been left in possession of the Manila Food Industry which was owned and operated by the Manila Motor Co., Inc.; and the reduction at least to half of the rentals then prevailing, the amount of P125 or P175 paid monthly by the defendant Manila Motor Co., Inc. must have been accepted by the lessor in full payment of the rentals. The trial court found "that the monthly rental during the Japanese occupation was reduced by mutual agreement between the lessor and the lessee from P1,100 to P125 or P175." On appeal, the Court of Appeals found that "the evidence on record fully justifies the conclusions arrived at by the trial judge as stated in the paragraph preceding the dispositive part of the decision quoted above." In the view of this agreement the point whether the sealing and occupation of a large part of the leased premises by the Imperial Japanese Army and by the Central Garage of the Japanesesponsored Government was just a mere trespass ( perturbacion de mero hecho) or juridical disturbance ( pertubacion de derecho) need not be passed upon. The Court of Appeals found that, with the express consent of William H. Rohde, the lessor, the Manila Motor Co., Inc., the lessee, assigned said lease to the defendant Chartered Bank of India, Australia and China, under the following terms and conditions:lawphi1.net 1. That this assignment does not carry with it any of the liabilities and obligations undertaken and assumed by the Manila Motor Co., Inc. in said lease; but the Chartered Bank of India, Australia and China has the option at any time to undertake and assume the said liabilities and obligations upon written notice by registered mail to the lessor, William H. Rohde; 2. That this assignment shall in no way absolve or release the Manila MotorCo., Inc., from the obligations and liabilities it has contracted in saidlease. (Exhibit B.) and that the Bank did not exercise its option to undertake and assume the liabilities and obligations of the Manila Motor Co. For that reason the Bank cannot be held liable for any amount of rental allegedly due from and unpaid by the lessee to the lessor or his successor-in-interest. Finding no error in the judgment under review we affirm it, with costs against the petitioner. Paras, C.J., Bengzon, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.

ERMINDA F. FLORENTINO, Petitioner,

G.R. No. 172384 Present: YNARES-SANTIAGO, Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ.

- versus -

SUPERVALUE, INC., Respondent.

Promulgated:

September 12, 2007 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioner Erminda F. Florentino, seeking to reverse and set aside the Decision,[1] dated 10 October 2003 and the Resolution,[2] dated 19 April 2006 of the Court of Appeals in CA-G.R. CV No. 73853. The appellate court, in its assailed Decision and Resolution, modified the Decision dated 30 April 2001 of the Regional Trial Court (RTC) of Makati, Branch 57, in Civil Case No. 00-1015, finding the respondentSupervalue, Inc., liable for the sum of P192,000.00, representing the security deposits made by the petitioner upon the commencement of their Contract of Lease. The dispositiveportion of the assailed appellate courts Decision thus reads: WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The April 30, 2001 Decision of the Regional Trial Court of Makati, Branch 57 is therefore MODIFIED to wit: (a) the portion ordering the [herein respondent] to pay the amount of P192,000.00 representing the security deposits and P50,000.00 as attorneys fees in favor of the [herein petitioner] as well as giving [respondent] the option to reimburse [petitioner] of the value of the improvements introduced by the [petitioner] on the leased [premises] should [respondent] choose to appropriate itself or require the

[petitioner] to remove the improvements, is hereby REVERSED and SET ASIDE; and (b) the portion ordering the return to [petitioner] the properties seized by [respondent] after the former settled her obligation with the latter is however MAINTAINED.[3]

The factual and procedural antecedents of the instant petition are as follows: Petitioner is doing business under the business name Empanada Royale, a sole proprietorship engaged in the retail of empanada with outlets in different malls and business establishments within Metro Manila.[4] Respondent, on the other hand, is a domestic corporation engaged in the business of leasing stalls and commercial store spaces located inside SM Malls found all throughout the country.[5] On 8 March 1999, petitioner and respondent executed three Contracts of Lease containing similar terms and conditions over the cart-type stalls at SM North Edsa and SMSouthmall and a store space at SM Megamall. The term of each contract is for a period of four months and may be renewed upon agreement of the parties.[6] Upon the expiration of the original Contracts of Lease, the parties agreed to renew the same by extending their terms until 31 March 2000.[7] Before the expiration of said Contracts of Lease, or on 4 February 2000, petitioner received two letters from the respondent, both dated 14 January 2000, transmitted through facsimile transmissions.[8] In the first letter, petitioner was charged with violating Section 8 of the Contracts of Lease by not opening on 16 December 1999 and 26 December 1999.[9] Respondent also charged petitioner with selling a new variety of empanada called miniembutido and of increasing the price of her merchandise from P20.00 to P22.00, without the prior approval of the respondent.[10] Respondent observed that petitioner was frequently closing earlier than the usual mall hours, either because of non-delivery or delay in the delivery of stocks to her outlets, again in violation of the terms of the contract. A stern warning was thus given to petitioner to refrain from committing similar infractions in the future in order to avoid the termination of the lease contract.[11]

In the second letter, respondent informed the petitioner that it will no longer renew the Contracts of Lease for the three outlets, upon their expiration on 31 March 2000.[12] In a letter-reply dated 11 February 2000, petitioner explained that the mini-embutido is not a new variety of empanada but had similar fillings, taste and ingredients as those of pork empanada; only, its size was reduced in order to make it more affordable to the buyers.[13] Such explanation notwithstanding, respondent still refused to renew its Contracts of Lease with the petitioner. To the contrary, respondent took possession of the store space in SM Megamall and confiscated the equipment and personal belongings of the petitioner found therein after the expiration of the lease contract.[14] In a letter dated 8 May 2000, petitioner demanded that the respondent release the equipment and personal belongings it seized from the SM Megamall store space and return the security deposits, in the sum of P192,000.00, turned over by the petitioner upon signing of the Contracts of Lease. On 15 June 2000, petitioner sent respondent another letter reiterating her previous demands, but the latter failed or refused to comply therewith. [15] On 17 August 2000, an action for Specific Performance, Sum of Money and Damages was filed by the petitioner against the respondent before the RTC of Makati, Branch 57.[16] In her Complaint docketed as Civil Case No. 00-1015, petitioner alleged that the respondent made verbal representations that the Contracts of Lease will be renewed from time to time and, through the said representations, the petitioner was induced to introduce improvements upon the store space at SM Megamall in the sum of P200,000.00, only to find out a year later that the respondent will no longer renew her lease contracts for all three outlets.[17] In addition, petitioner alleged that the respondent, without justifiable cause and without previous demand, refused to return the security deposits in the amount ofP192,000.00.[18] Further, petitioner claimed that the respondent seized her equipment and personal belongings found inside the store space in SM Megamall after the lease contract for the said outlet expired and despite repeated written demands from the petitioner, respondent continuously refused to return the seized items.[19]

Petitioner thus prayed for the award of actual damages in the sum of P472,000.00, representing the sum of security deposits, cost of improvements and the value of the personal properties seized. Petitioner also asked for the award of P300,000.00 as moral damages; P50,000.00 as exemplary damages; and P80,000.00 as attorneys fees and expenses of litigation.[20] For its part, respondent countered that petitioner committed several violations of the terms of their Contracts of Lease by not opening from 16 December 1999 to 26 December 1999, and by introducing a new variety of empanada without the prior consent of the respondent, as mandated by the provision of Section 2 of the Contract of Lease. Respondent also alleged that petitioner infringed the lease contract by frequently closing earlier than the agreed closing hours. Respondent finally averred that petitioner is liable for the amount P106,474.09, representing the penalty for selling a new variety of empanada, electricity and water bills, and rental adjustment, among other charges incidental to the lease agreements. Respondent claimed that the seizure of petitioners personal belongings and equipment was in the exercise of its retaining lien, considering that the petitioner failed to settle the said obligations up to the time the complaint was filed.[21] Considering that petitioner already committed several breaches of contract, the respondent thus opted not to renew its Contracts of Lease with her anymore. The security deposits were made in order to ensure faithful compliance with the terms of their lease agreements; and since petitioner committed several infractions thereof, respondent was justified in forfeiting the security deposits in the latters favor. On 30 April 2001, the RTC rendered a Judgment[22] in favor of the petitioner and found that the physical takeover by the respondent of the leased premises and the seizure of petitioners equipment and personal belongings without prior notice were illegal. The decretal part of the RTC Judgment reads: WHEREFORE, premises duly considered, judgment is hereby rendered ordering the [herein respondent] to pay [herein petitioner] the amount of P192,000.00 representing the security deposits made by the [petitioner] and P50,000.00 as and for attorneys fees. The [respondent] is likewise ordered to return to the [petitioner] the various properties seized by the former after settling her account with the [respondent]. Lastly, the [respondent] may choose either to reimburse the [petitioner] one half (1/2) of the value of the improvements introduced by the plaintiff at SM Megamall should [respondent] choose to appropriate the improvements to itself or require the [petitioner] to remove the improvements, even though the principal thing

may suffer damage thereby. [Petitioner] shall not, however, cause anymore impairment upon the said leased premises than is necessary. The other damages claimed by the plaintiff are denied for lack of merit.

Aggrieved, the respondent appealed the adverse RTC Judgment to the Court of Appeals. In a Decision[23] dated 10 October 2003, the Court of Appeals modified the RTC Judgment and found that the respondent was justified in forfeiting the security deposits and was not liable to reimburse the petitioner for the value of the improvements introduced in the leased premises and to pay for attorneys fees. In modifying the findings of the lower court, the appellate court declared that in view of the breaches of contract committed by the petitioner, the respondent is justified in forfeiting the security deposits. Moreover, since the petitioner did not obtain the consent of the respondent before she introduced improvements on the SM Megamall store space, the respondent has therefore no obligation to reimburse the petitioner for the amount expended in connection with the said improvements.[24] The Court of Appeals, however, maintained the order of the trial court for respondent to return to petitioner her properties after she has settled her obligations to the respondent. The appellate court denied petitioners Motion for Reconsideration in a Resolution[25] dated 19 April 2006. Hence, this instant Petition for Review on Certiorari[26] filed by the petitioner assailing the Court of Appeals Decision. For the resolution of this Court are the following issues:

I. II.

Whether or not the respondent is liable to return the security deposits to the petitions. Whether or not the respondent is liable to reimburse the petitioner for the sum of the

improvements she introduced in the leased premises. III. Whether or not the respondent is liable for attorneys fees.[27]

The appellate court, in finding that the respondent is authorized to forfeit the security deposits, relied on the provisions of Sections 5 and 18 of the Contract of Lease, to wit: Section 5. DEPOSIT. The LESSEE shall make a cash deposit in the sum of SIXTY THOUSAND PESOS (P60,000.00) equivalent to three (3) months rent as security for the full and faithful performance to each and every term, provision, covenant and

condition of this lease and not as a pre-payment of rent. If at any time during the term of this lease the rent is increased[,] the LESSEE on demand shall make an additional deposit equal to the increase in rent. The LESSOR shall not be required to keep the deposit separate from its general funds and the deposit shall not be entitled to interest. The deposit shall remain intact during the entire term and shall not be applied as payment for any monetary obligations of the LESSEE under this contract. If the LESSEE shall faithfully perform every provision of this lease[,] the deposit shall be refunded to the LESSEE upon the expiration of this Lease and upon satisfaction of all monetary obligation to the LESSOR. xxxx Section 18. TERMINATION. Any breach, non-performance or non-observance of the terms and conditions herein provided shall constitute default which shall be sufficient ground to terminate this lease, its extension or renewal. In which event, the LESSOR shall demand that LESSEE immediately vacate the premises, and LESSOR shall forfeit in its favor the deposit tendered without prejudice to any such other appropriate action as may be legally authorized.[28]

Since it was already established by the trial court that the petitioner was guilty of committing several breaches of contract, the Court of Appeals decreed that she cannot therefore rightfully demand the return of the security deposits for the same are deemed forfeited by reason of evident contractual violations. It is undisputed that the above-quoted provision found in all Contracts of Lease is in the nature of a penal clause to ensure petitioners faithful compliance with the terms and conditions of the said contracts. A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to insure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.[29] The obligor would then be bound to pay the stipulated indemnity without the necessity of proof of the existence and the measure of damages caused by the breach.[30] Article 1226 of the Civil Code states: Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

As a general rule, courts are not at liberty to ignore the freedoms of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contracts in two instances: (1) if the principal obligation has been partly or irregularly complied with; and (2) even if there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229 of the Civil Code which clearly provides:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.[31]

In ascertaining whether the penalty is unconscionable or not, this court set out the following standard in Ligutan v. Court of Appeals,[32] to wit: The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factor as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. xxx.

In the instant case, the forfeiture of the entire amount of the security deposits in the sum of P192,000.00 was excessive and unconscionable considering that the gravity of the breaches committed by the petitioner is not of such degree that the respondent was unduly prejudiced thereby. It is but equitable therefore to reduce the penalty of the petitioner to 50% of the total amount of security deposits. It is in the exercise of its sound discretion that this court tempered the penalty for the breaches committed by the petitioner to 50% of the amount of the security deposits. The forfeiture of the entire sum of P192,000.00 is clearly a usurious and iniquitous penalty for the transgressions committed by the petitioner. The respondent is therefore under the obligation to return the 50% of P192,000.00 to the petitioner.

Turning now to the liability of the respondent to reimburse the petitioner for one-half of the expenses incurred for the improvements on the leased store space at SMMegamall, the following provision in the Contracts of Lease will enlighten us in resolving this issue: Section 11. ALTERATIONS, ADDITIONS, IMPROVEMENTS, ETC. The LESSEE shall not make any alterations, additions, or improvements without the prior written consent of LESSOR; and all alterations, additions or improvements made on the leased premises, except movable or fixtures put in at LESSEEs expense and which are removable, without defacing the buildings or damaging its floorings, shall become LESSORs property without compensation/reimbursement but the LESSOR reserves the right to require the removal of the said alterations, additions or improvements upon expiration of the lease.

The foregoing provision in the Contract of Lease mandates that before the petitioner can introduce any improvement on the leased premises, she should first obtain respondents consent. In the case at bar, it was not shown that petitioner previously secured the consent of the respondent before she made the improvements on the leased space in SM Megamall. It was not even alleged by the petitioner that she obtained such consent or she at least attempted to secure the same. On the other hand, the petitioner asserted that respondent allegedly misrepresented to her that it would renew the terms of the contracts from time to time after their expirations, and that the petitioner was so induced thereby that she expended the sum of P200,000.00 for the improvement of the store space leased. This argument was squarely addressed by this court in Fernandez v. Court of Appeals,[33] thus: The Court ruled that the stipulation of the parties in their lease contract to be renewable at the option of both parties stresses that the faculty to renew was given not to the lessee alone nor to the lessor by himself but to the two simultaneously; hence, both must agree to renew if a new contract is to come about. Petitioners contention that respondents had verbally agreed to extend the lease indefinitely is inadmissible to qualify the terms of the written contract under the parole evidence rule, and unenforceable under the statute of frauds.[34]

Moreover, it is consonant with human experience that lessees, before occupying the leased premises, especially store spaces located inside malls and big commercial establishments, would renovate the place and introduce improvements thereon according to the needs and nature of their business and in harmony with their trademark designs as part of their marketing ploy to attract customers. Certainly, no inducement or misrepresentation from the lessor is necessary for this purpose,

for it is not only a matter of necessity that a lessee should re-design its place of business but a business strategy as well. In ruling that the respondent is liable to reimburse petitioner one half of the amount of improvements made on the leased store space should it choose to appropriate the same, the RTC relied on the provision of Article 1678 of the Civil Code which provides: Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessorupon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary.

While it is true that under the above-quoted provision of the Civil Code, the lessor is under the obligation to pay the lessee one-half of the value of the improvements made should the lessor choose to appropriate the improvements, Article 1678 however should be read together with Article 448 and Article 546 of the same statute, which provide: Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. xxxx Art. 546. Necessary expenses shall be refunded to every possessor; but only possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.

Thus, to be entitled to reimbursement for improvements introduced on the property, the petitioner must be considered a builder in good faith. Further, Articles 448 and 546 of the Civil Code,

which allow full reimbursement of useful improvements and retention of the premises until reimbursement is made, apply only to a possessor in good faith, i.e.,one who builds on land with the belief that he is the owner thereof. A builder in good faith is one who is unaware of any flaw in his title to the land at the time he builds on it.[35] In this case, the petitioner cannot claim that she was not aware of any flaw in her title or was under the belief that she is the owner of the subject premises for it is a settled fact that she is merely a lessee thereof. In Geminiano v. Court of Appeals,[36] this Court was emphatic in declaring that lessees are not possessors or builders in good faith, thus: Being mere lessees, the private respondents knew that their occupation of the premises would continue only for the life of the lease. Plainly, they cannot be considered as possessors nor builders in good faith. In a plethora of cases, this Court has held that Article 448 of the Civil Code, in relation to Article 546 of the same Code, which allows full reimbursement of useful improvements and retention of the premises until reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. It does not apply where one's only interest is that of a lessee under a rental contract; otherwise, it would always be in the power of the tenant to "improve" his landlord out of his property.

Since petitioners interest in the store space is merely that of the lessee under the lease contract, she cannot therefore be considered a builder in good faith. Consequently, respondent may appropriate the improvements introduced on the leased premises without any obligation to reimburse the petitioner for the sum expended. Anent the claim for attorneys fees, we resolve to likewise deny the award of the same. Attorneys fees may be awarded when a party is compelled to litigate or to incur expenses to protect its interest by reason of unjustified act of the other.[37] In the instant petition, it was not shown that the respondent unjustifiably refused to grant the demands of the petitioner so as to compel the latter to initiate legal action to enforce her right. As we have found herein, there is basis for respondents refusal to return to petitioner the security deposits and to reimburse the costs of the improvements in the leased premises. The award of attorneys fees is therefore not proper in the instant case.

WHEREFORE, premises considered, the instant Petition is PARTLY GRANTED. The Court of Appeals Decision dated 10 October 2003 in CA-G.R. CV No. 73853 is hereby AFFIRMED with the MODIFICATION that the respondent may forfeit only 50% of the total amount of the security deposits in the sum of P192,000.00, and must return the remaining 50% to the petitioner. No costs. SO ORDERED.

G.R. No. 160867

September 20, 2006 NAKPIL, petitioner,

BONIFACIO vs. MANILA TOWERS DEVELOPMENT CORPORATION, respondent. x--------------------------------------x G.R. No. 160886 September 20, 2006 DEVELOPMENT

MANILA TOWERS vs. BONIFACIO NAKPIL, respondent. DECISION CALLEJO, SR., J.:

CORPORATION, petitioner,

This is a consolidation of two Petitions for Review, assailing the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 72289 dated August 25, 2003 and the Resolution dated November 19, 2003 denying the motion for reconsideration thereof. The Antecedents A 14-storey high rise building was constructed at 777 Ongpin St., Sta. Cruz, Manila. Sometime in 1964, its owner, Cheong Kiao Ang, leased the building to about 200 Filipino Chinese tenants who used the same for either residential or commercial purposes. One of these tenants was Atty. Bonifacio Nakpil who leased Room 204 in the mezzanine floor. He used the unit as his law office.2 The tenants of the building later formed the House International Building Tenants Association, Inc. (HIBTAI). The property was mortgaged with the Government Service Insurance System (GSIS) as security for a loan Ang had earlier obtained. Upon failure to pay the loan, the GSIS had the real estate mortgage foreclosed and the property sold at public auction, with GSIS as the winning bidder. The latter, in turn, sold the property to the Centertown Marketing Corporation (CMC) which assigned all its rights to its sistercorporation, the Manila Tower Development Corporation (MTDC) for P21,000,000.00. The HIBTAI

protested, claiming that its members had the priority to buy the property.3 The tenants refused to pay their rentals and instead remitted them to HIBTAI. On June 29, 1981, the City Engineer wrote the MTDC, through Luis Javellana, requesting that the defects of the building be corrected. The City Engineer warned the MTDC that the defects were serious and would endanger the lives of the tenants if not immediately corrected. The City Engineer reiterated his request in a letter dated July 10, 1981 to MTDC urging that the building be immediately repaired. However, before the MTDC could make the necessary repairs, the HIBTAI, on October 2, 1982, filed a complaint against the GSIS for injunction and damages in the Court of First Instance (CFI) of Manila. On January 31, 1983, the court rendered judgment dismissing the complaint. However, on February 23, 1983, HIBTAI filed another complaint for annulment of contract and damages in the CFI of Manila, docketed as Civil Case No. 83-15875, against the CMC, MTDC and GSIS. It averred that under Presidential Decree (P.D.) No. 1517, the tenants had the priority right to purchase the property. The court rendered judgment dismissing the complaint, prompting HIBTAI to appeal the decision to the appellate court. The ruling of the trial court was later affirmed on February 4, 1986. HIBTAI assailed the ruling in this Court via petition for review. On June 30, 1987, this Court rendered judgment affirming the decision of the CA.4 According to the Court, the tenants of the building, not the HIBTAI, were the real parties-in-interest as parties-plaintiffs. About eight (8) years later, on October 12, 1995, Atty. Samuel S. Samuela, the building administrator, wrote Architect Juan A. Maravillas, Jr., then Officer-in-Charge (OIC), Office of the Building Official, City of Manila, requesting for an immediate ocular inspection of the building to determine its safety. The letter mentioned that, as far back as 1981, the City Engineer and Building Official had ordered the building condemned after inspection. Atty. Samuela stated that when the MTDC was about to initiate the repairs on the building, the tenants filed several suits against it; this prevented MTDC from complying with the said order. During the pendency of these cases, the tenants likewise took control of the building and even illegally put up structures in the building without MTDC's consent. He pleaded to the Building Official to give priority to his request to prevent undue injuries and protect the lives of the tenants.5 The City Building Official granted the request and scheduled an ocular inspection of the building at 2:00 p.m. on October 24, 1995.6 With prior notices to the tenants and in the presence of a representative of HIBTAI, Amado Ramoneda, the representatives of the Office of the Building Official conducted an ocular inspection of the building.7 On November 3, 1995, they submitted a Building Inspection Report with the following findings: I. STRUCTURAL ASPECT (Sec. 3.1 Rule VII-IRR) 1. Cracks on the exterior interior walls are prominent which manifest earthquake movement and decrease in seismic resistance. Damages to beams and columns are feasible. II. ELECTRICAL ASPECT (Sec. 3.3 Rule VII-IRR) 2. Wiring system are already old, obsolete and not properly maintained;

3. Some junction boxes are not properly covered thus exposing the wiring connections; 4. Usage of dangling extension cords and octopus wiring connections were likewise observed. III. SANITARY/PLUMBING ASPECT (Sec. 3.5 Rule VII-IRR) 5. Defective sanitary/plumbing installations; 6. Poor drainage system that caused the stagnation of waste water within the back part (Ground Floor) of the building; 7. All sanitary/plumbing fixtures on vacated 9th, 10th & 11th floors, due to lack of proper maintenance has los[t] their trap seals, this allowed the escape of toxicating sewer gas from the system. IV. ARCHITECTURAL ASPECT (Sec. 3.6 Rule VII-IRR). 8. Steel frames and roofings at deck are rusted/corroded and inadequately maintained; 9. Broken window glass panes and rusted steel casement; 10. Inadequate light and ventilation resulting from illegal constructions at the required open space areas; 11. Illegal use of 14th floor as sauna bath parlor which is non-conforming to City Ordinance. OTHERS 12. Non-compliance with the provisions of BP 344, the Law to Enhance Mobility of Disabled Persons; 13. Illegal construction at the estero easement area and at the required open spaces in violations of Section 3.8 Rule VII-IRR.8 (Underscoring supplied) The City Building Official recommended that the windows glass/frames be repaired and the illegally appended structures removed. It was also recommended that the use of the sauna bath be discontinued and the old electrical wiring system and fixtures be replaced. He also stated that the structural integrity of the building was questionable, and that structural testing was needed.9 Consequently, on November 10, 1995, the City Building Official wrote a letter to the building administrator, ordering him to cause the tenants to vacate the building and undertake the necessary repairs and rehabilitation of the building. The following warning was also issued: Failure to comply herewith shall constrain this Office to impose further administrative sanctions in accordance with the provisions of the National Building Code PD. 1096, as well as the other

existing laws and ordinances. This is without prejudice to further legal action that may be taken under the provisions of Articles 482 and 694 to 707 of the Civil Code of the Philippines.10 However, the MTDC did not respond to the letter. On January 24, 1996, the City Building Official issued a Closure Order to the MTDC and ordered the building administrator to cause the tenants to vacate the building within fifteen (15) days from notice and to commence its repair. He also directed MTDC to file an application for the necessary permits before the start of the actual repairs, together with a certification on structural stability from the building's structural designer and to attach thereto the results of the structural testing as well as the recommendation/evaluation reports, scope of project activities, repair/renovation plans and retrofitting plans. The order would only be lifted after the defects or deficiencies of the subject building or structure shall have been corrected or substantially complied with in accordance with Section 21, Rule VIII-IRR, P.D. No. 1096, without prejudice to further action that may be taken under the provisions of Articles 482, and 694 to 707 of the Civil Code, as well as other existing laws and ordinances.11 The City Building Official conducted a reinspection of the building and, on March 26, 1996, made the following recommendation: It is recommended that because of: 1) the adamant refusal of the owners of the building to correct the serious defects noted by this Office as early as 1981 up to the present, notwithstanding notices to this effect; 2) the directive of national as well as local leaders to intensify the campaign against buildings which are dangerous to life and limb as exemplified in the tragic Ozone case in Quezon City; and 3) the possibility of City officials incurring criminal as well as administrative liabilities for failure to take positive steps to protect the lives of the people against ruinous or dangerous buildings. The persistence of the owners of the building in not undertaking the required urgent repairs allegedly because of suits filed against them, gives this Office no better alternative but to recommend that the City Engineer be authorized and directed to make the necessary repairs and all expenses thereto be shouldered by the owners of the building and also to order the occupants of the building to immediately vacate the premises to give way to the repair and to ensure the protection of their lives and property. Approval of this request is urgently needed.12 The City Mayor approved the recommendation and directed the repairs of the building by the City Building Official with the expenses therefor to be charged against the account of MTDC.13 On June 28, 1996, notices were sent to the tenants, giving them fifteen (15) days within which to vacate the building to give way to its general repair.14 However, at the time, Atty. Nakpil was in the United States for medical treatment, and his secretary was left behind to take care of the law office. Felix Ong, one of the tenants in the building and the President of the HIBTAI, filed a petition for prohibition with a plea for a writ of preliminary injunction and/or a temporary restraining order (TRO)

with damages against the MTDC, City Engineer and Police Major Franklin Gacutan, docketed as Civil Case No. 96-79267. Ong prayed that a TRO be issued to enjoin respondents from conducting repair and rehabilitation work within the building, which the court granted. Clemente Sy, who claimed to be the Barangay Captain of Barangay No. 297, Zone 29 where the building was located and the incumbent President of the House International Building Tenants Association, filed a similar petition against the same respondents, including MTDC.15 At about 4:00 p.m. on July 19, 1996, a group of men led by Engr. Melvin Balagot, the Chief Slum Clearance and Demolition Services of the Office of the City Building Official, entered the building and, in compliance with the order of the City Mayor as recommended by the City Building Official, commenced the repairs and tore down some of the structures. However, the repair works were temporarily suspended on July 22, 1996 as a result of the TRO issued by the court in favor of Ong in Civil Case No. 9679267. On July 23, 1996, Engr. Balagot submitted the following Report: 1. That all the occupants thereat already vacated the premises to give way for the repair work of the subject structure except for the unit occupied by the security guards at the ground floor; 2. That most of the interior walls were already dismantled by this Office to give way for immediate replacement. 3. It is likewise reported that the said building is not safe for occupancy for the meantime. For your information and further instruction. (SGD) MELVIN Q. Engineer Chief, Slum Clearance and Demolition Services.16

BALAGOT V

Upon his arrival in the Philippines, Atty. Nakpil filed, on November 5, 1996, a complaint in the Regional Trial Court (RTC) of Manila against the MTDC, seeking for actual, moral, and exemplary damages, attorney's fees, litigation expenses, costs of suit and other reliefs. The case was docketed as Civil Case No. 65980. He alleged that the MTDC, through its agents and representatives and the policemen who accompanied the demolition team, forced the guard to open the gate to the building, and, thereafter, 200 people armed with hammer and crowbars started destroying the mezzanine floor of the building on July 19, 1996. His room was destroyed, the walls and partitions were completely hammered down, and the electricity was cut off. His personal belongings were either scattered, thrown away, or stolen. He pointed out that he had been renting the premises and complying with the conditions of the lease since 1965. The MTDC violated his right as lessee to the possession of the premises, unlawfully depriving him of said possession without any lawful authority or court order.17 Atty. Nakpil prayed that MTDC be ordered to pay the following:

a) P100,000 for actual damages, representing the value of the personal belongings and important papers which were lost and/or stolen by the representatives of the defendant during the actual demo[li]tion and tearing or hammering down of the walls and partitions of the room of the plaintiff; b) The sum of P500,000.00 as moral damages; c) The sum of P100,000.00 as exemplary damages; d) The sum equivalent to 20% of the amount due to the plaintiff as attorney's fees; and e) The sum of P50,000 as litigation expenses, plus costs of suit. Plaintiff prays for such other relief and remedies he is entitled to in the premises.18 Meantime, the trial court dismissed the complaint of Ong in Civil Case No. 96-79267. In view of this development, the Office of the Mayor sent a letter dated March 6, 1998 to the President and officers of the MTDC, and the owners of the building, directing them to undertake immediate repairs within three (3) days from receipt thereof, otherwise, it will undertake the repair and all expenses shall be charged against them.19 The Office of the Mayor made it clear that the order became necessary to protect the people from any injury as a consequence of the dilapidated and serious deterioration of the building. The MTDC forthwith applied for a demolition permit with the Office of the Building Official which was granted on March 30, 1998.20 The MTDC later had the building demolished. In due course, the complaint and summons were served on MTDC on April 14, 1998 in Civil Case No. 65980.21In its answer to the complaint, MTDC alleged that it was the City of Manila which caused the repair of the building, following the tragic Ozone fire incident in Quezon City. Consequently, it was not liable for Atty. Nakpil's claims. Atty. Nakpil testified that he had been a lessee of Room 204 and used the room as a law office; on July 19, 1996, he was in the United States for treatment when his daughter informed him, through phone, that his place was being demolished. He rushed back home and arrived in Manila on July 30, 1996, and discovered that he had no more office to speak of. The demolition team (the sheriff, policemen and laborers), armed with crowbars, looted the room and destroyed the pipes and cabinets and scattered his things.22 He lost some of his books, a tanguile table, three paintings, two manual typewriters, all valued at P100,000.00. He averred that he had been in the law practice for 30 years, all spent in Room 204; because of the demolition of his office, he could not resume his law practice. For his part, Joseph Villanueva declared that, since 1973, he had leased a portion of the mezzanine floor, Room 200, which he used as his clinic. At around 3:00 p.m. on July 19, 1996, a group of employees of the City Engineer's Office, accompanied by policemen and sheriffs, gained entry into the building, cut the electric current, and destroyed the pipes with the use of heavy equipments and crowbars. They demolished the mezzanine and upper floors and other parts of the building. Around 20 members of the demolition crew entered the office of Atty. Nakpil. Some members of the demolition crew looted the room and took everything they could carry. He stated that what he and the tenants received were notices to repair and not notice of demolition.

Atty. Nakpil presented Engr. Guillermo de Leon who testified that he was requested to conduct an ocular inspection of the building. As per his report dated August 9, 1990, he assessed the building to be safe, sound and stable. The building was not destroyed by the earthquake on July 6, 1990. He found hairline cracks, caused probably by temperature. He never used any instrument to determine the structural stability because there was no danger. He stated that upon inspection, he found no hairline cracks and that the building could be saved by plastering; in fact, it could withstand any earthquake. Carmelita Tan, a member of the HIBTAI, testified that she owned a grocery store in the ground floor and in the mezzanine. At about 4:00 p.m. on July 19, 1996, 100 persons, carrying hammers and crowbars and long irons, gained entry into the building. She rushed to the mezzanine and saw that ten of them were in the law office of Atty. Nakpil and that the door and partitions were damaged. The lights were off at the time. MTDC adduced testimonial and documentary evidence that the Office of the City Engineer, through Engr. Melvin Balagot, Jr., commenced the repairs of the building on July 19, 1996, with the assistance of the employees of the City Engineer's Office, laborers and policemen who were tasked to check the flow of traffic. They removed the cracked interior walls of the building with crowbars, hammers and other instruments, and some portions of the ceiling which needed to be replaced.23 However, they did not remove the walls and partitions in the mezzanine floor.24 They started the work on the 9th and 10th floors of the building,25 but had to stop due to the temporary restraining order from the RTC of Manila on the complaint of Felix Ong. During the ocular inspection of the building on August 8, 1996 conducted by the Clerk of Court in connection with Civil Case No. 96-79267, the Office of Atty. Nakpil was unoccupied.26 On May 20, 2001, the court rendered judgment in favor of MTDC and ordered the dismissal of the complaint. The trial court declared that Atty. Nakpil failed to prove that the building was demolished on July 30, 1996 and failed to link MTDC to the incident on July 19, 1996 and the loss of the personal properties of Atty. Nakpil. As admitted by one of his witnesses (Villanueva), the employees of the City Engineer's office were the ones who demolished the building, while Carmelita Tan declared that she did not know who those people were.27 Atty. Nakpil appealed to the CA. On August 25, 2003, the CA rendered judgment granting the appeal and reversing the decision of the RTC. The fallo of the decision reads: WHEREFORE premises considered, the appealed decision of the Regional Trial Court, Branch 152 in Civil Case No. is hereby REVERSED and SET ASIDE. A new one is hereby rendered ordering defendant-appellee, Manila Towers to pay herein plaintiff-appellant Bonifacio Nakpil the amount of P50,000.00 as nominal damages. SO ORDERED.28 The CA held that MTDC was remiss in its duty as lessor under Article 1654, that is, to make the necessary repairs on the building. This led to the demolition of the leased premises, thereby disturbing the peaceful and adequate enjoyment of the lessee. Thus, the failure of MTDC to fulfill such obligation entitled Atty. Nakpil to damages. The appellate court cited Goldstein v. Roces.29 However, the CA also ruled that no actual damages could be awarded to Atty. Nakpil since he failed to present competent evidence to prove the actual damages sustained. Neither can moral damages be awarded to him since

he likewise failed to prove bad faith or any fraudulent act on the part of MTDC. Thus, no exemplary damages could likewise be awarded, and, consequently, he was not entitled to attorney's fees. According to the CA, the most that could be adjudged in his favor was nominal damages for violation of his right.30 The parties filed their respective motions for reconsideration of the decision, which the CA denied in its Resolution dated November 19, 2003.31 The parties filed their respective petitions for review on certiorari in this Court, seeking to reverse the decision and resolution of the appellate court. In G.R. No. 160867, Nakpil, petitioner therein, contends that, while actual damages must be proven as a general rule and the amount of damages must possess at least a degree of certainty, it is not necessary to prove exactly how much the loss was; it is enough that loss is proven. He insists that he has presented proof that he suffered losses when his office was demolished and the value he gave was a fair and reasonable assessment thereof. He maintains that as of June 1995, there were already 245 volumes of the Supreme Court Reports Annotated (SCRA). In 1998, the value of each volume of the SCRA was P520.00; hence, the value of 245 volumes would be P127,400.00, a matter which the court can take judicial notice of. Assuming that the evidence he presented is not sufficient to entitle him to an award of actual damages, the P50,000.00 nominal damages awarded to him is too minimal. He maintains that he is entitled to moral damages because the MTDC had the building demolished to have him evicted from his office; he suffered mental anguish and was embarrassed by his eviction; he had his law office for more than 30 years and considered it his second home. On the other hand, in G.R. No. 160886, MTDC, petitioner therein, avers that it cannot be made liable for actual, moral and exemplary damages because it had not been remiss in its duty to make the necessary repairs; it was prohibited from taking possession of the property by the tenants who had filed several suits against it.32 It alleged that it acquired the building from the GSIS in 1981, and it was the HIBTAI that had been managing the affairs of the said building and collected the rentals from the tenants. It pointed out that in CA-G.R. No. 04393, the CA ruled that the HIBTAI had no right to collect the rentals. Moreover, HIBTAI did not use the rentals to make the necessary repairs but used it instead to pay its accounts and obligations. By their own actions, the tenants of the subject building prevented MTDC from performing its duty to maintain them in their peaceful possession and enjoyment of the property. Moreover, Nakpil failed to prove that it had anything to do with the demolition/repairs and the loss of his personal property. Nakpil counters that while MTDC may have failed to make the necessary repairs because it was prevented by the tenants' association from doing so, there is no showing that it failed to maintain him in the peaceful and adequate possession of the leased premises for the same reason. He contends that MTDC allowed the city to demolish the building even when the order was only for its repair. He posits that the MTDC is liable for damages because the MTDC, not a third person, deprived him of his possession of the leased premises.33 The threshold issues are: (1) whether or not the MTDC is liable for actual, moral and exemplary damages to Nakpil; and (2) whether the award of P50,000.00 for nominal damages has factual and legal basis. The Ruling of the Court

The petition of the MTDC in G.R. No. 160886 is meritorious. The petition of Nakpil in G.R. No. 160867 is denied for lack of merit. Article 1654 of the Civil Code enumerates the obligations of the lessor: (1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use for which it has been devoted, unless there is a stipulation to the contrary; (3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. Failure of the lessor to fulfill any of these obligations will render the lessor liable for damages.34 In contracts, the obligor (lessor) who acted in good faith is liable for damages that are the material and probable consequence of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was contracted. In case of fraud, bad faith, malice or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.35 We do not agree with the ruling of the CA that the MTDC committed a breach of its lease contract with Nakpil when it failed to comply with its obligation as lessor, and that the MTDC is liable for nominal damages. Breach of contract is the failure without legal reason to comply with the terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise which forms the whole or part of the contract.36 There is no factual and legal basis for any award for damages to respondent. The duty to maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the contract is merely a warranty that the lessee shall not be disturbed in his legal, and not physical, possession.37In the early case of Goldstein v. Roces,38 the Court, citing the commentaries of Manresa, pointed out that the obligation to maintain the lessee in the peaceful and adequate enjoyment of the leased property seeks to protect the lessee not only from acts of third persons but also from the acts of the lessor, thus: The lessor must see that the enjoyment is not interrupted or disturbed, either by others' acts [save in the case provided for in the article 1560 (now Article 1664)], or by his own. By his own acts, because, being the person principally obligated by the contract, he would openly violate it if, in going back on his agreement, he should attempt to render ineffective in practice the right in the thing he had granted to the lessee; and by others' acts, because he must guarantee the right he created, for he is obliged to give warranty in the manner we have set forth in our commentary on article 1553, and, in this sense, it is incumbent upon him to protect the lessee in the latter's peaceful enjoyment.39 When the act of trespass is done by third persons, it must be distinguished whether it is trespass in fact or in law because the lessor is not liable for a trespass in fact or a mere act of trespass by a third person.40 In theGoldstein case, trespass in fact was distinguished from legal trespass, thus: "if the act of trespass is not accompanied or preceded by anything which reveals a juridic intention on the part of the

trespasser, in such wise that the lessee can only distinguish the material fact, stripped of all legal form or reasons, we understand it to be trespass in fact only (de mero hecho)."41 Further, the obligation under Article 1654(3) arises only when acts, termed as legal trespass (perturbacion de derecho), disturb, dispute, object to, or place difficulties in the way of the lessee's peaceful enjoyment of the premises that in some manner cast doubt upon the right of the lessor by virtue of which the lessor himself executed the lease.42 What is evident in the present case is that the disturbance on the leased premises on July 19, 1996 was actually done by the employees under the City Engineer of Manila and the City Building Official on orders of the City Mayor without the participation of the MTDC. It bears stressing that the City Building Official is authorized and mandated under Section 214 of the National Building Code to order the repair, maintenance or demolition of the building found or declared to be dangerous or ruinous, depending upon the degree of danger to life, health, safety and/or well-being of the general public and its occupants as provided in Section 215 thereof. This is without prejudice to the provisions of Articles 482, 694 and 707 of the New Civil Code. Sections 214 and 215 of the National Building Code read: SECTION 214. Dangerous and Ruinous Buildings or Structures Dangerous buildings are those which are herein declared as such or are structurally unsafe or not provided with safe egress, or which constitute a fire hazard, or are otherwise dangerous to human life, or which in relation to existing use, constitute a hazard to safety or health or public welfare because of inadequate maintenance, dilapidation, obsolescence, or abandonment; or which otherwise contribute to the pollution of the site or the community to an intolerable degree. SECTION 215. Abatement of Dangerous Buildings When any building or structure is found or declared to be dangerous or ruinous, the Building Official shall order its repair, vacation or demolition depending upon the degree of danger to life, health, or safety. This is without prejudice to further action that may be taken under the provisions of Articles 482 and 694 to 707 of the Civil Code of the Philippines. When the personnel of the City Building Official/City Engineer in coordination with the Philippine National Police undertook the repair/rehabilitation of the building, they did so in the lawful performance of their duties, independently of and separate from the obligation of the MTDC to effect the required immediate repair/rehabilitation of the building. Admittedly, the MTDC requested the City Building Official for the inspection of the building to determine its safety, conformably with its obligation under Article 1654 of the New Civil Code to maintain peaceful and adequate enjoyment of the tenants of the leased premises, and to insure the personal safety of the tenants and their properties. At the time, the Ozone Bar and Grill in Quezon City had just been burned down, and many lives were lost. There is no question that the possession by respondent of the leased premises had been disturbed by the attempt of the personnel of the City Building Official to repair and rehabilitate the building due to MTDC's failure to undertake the same. Any act or omission by the lessor which causes a substantial interference with the actual possession of the lessee will constitute a breach of the obligation of quiet

enjoyment. In some jurisdictions, the lessor's failure to make repairs or alterations to the leased premises as required by public authorities, particularly those that are substantial and structural in nature, constitutes constructive eviction, which makes the lessor liable for damages.43 Such conclusion is grounded on the fact that the lessors, in those cases, were obliged to make structural and substantial repairs on the leased property. The same doctrine could very well be applied in our jurisdiction considering that, under our laws, the lessor is likewise obliged to make the necessary repairs on the leased premises which would undoubtedly include those that are structural and substantial in nature. In fact, there may be a constructive eviction if the landlord does a wrongful act or is guilty of any default or neglect whereby the leased premises are rendered unsafe, unfit, or unsuitable for occupancy, in whole, or in substantial part, for the purposes for which they were leased.44 It bears stressing, however, that two factors must exist before there can be a constructive eviction: (1) an act or omission by the landlord, or someone acting under his authority, which permanently interferes with the tenant's beneficial enjoyment or use of the leased premises; and (2) an abandonment of possession by the lessee within a reasonable time.45 Nakpil failed to establish any of the foregoing factors. The City Building Official was tasked merely to repair/rehabilitate the building and not to demolish the same and cause the placement eviction of the tenants. Neither did respondent abandon the leased premises. Admittedly, the MTDC failed to make the necessary repairs in the building despite requests of the City Building Official as early as June 29, 1981 and July 10, 1981. However, the MTDC cannot be faulted for such failure. No less than the HIBTAI or its members prevented MTDC from instituting the necessary repairs. Even Villanueva, Nakpil's witness, admitted that HIBTAI objected to the orders of the City Building Official for the repair of the building.46 Moreover, a complaint for injunction and damages was filed by the HIBTAI on October 2, 1982 against the MTDC. Even after the dismissal of the complaint, on January 31, 1983, the HIBTAI filed a complaint against the GSIS, CMC and MTDC with the RTC of Manila for the nullification of the deed of conditional sale between the GSIS and the CMC and the deed of assignment executed by the defendant CMC and the MTDC over the property. Plaintiff alleged therein that its members, presumably including Nakpil, the tenants in the building had the priority right under P.D. No. 1517 to purchase the property; that the CMC was not qualified to purchase the property from the GSIS under its Articles of Information and, hence, the deed of conditional sale was ultra vires; consequently, the deed of assignment executed by the CMC and its sister corporation was null and void. The tenants in the building, including Nakpil, refused to pay rentals and remitted the same to the HIBTAI which used the money partly to finance its suits against the MTDC, thus depriving the latter from generating funds for the repair of the building. In fine, the tenants, through the HIBTAI, already controlled the premises. The RTC dismissed the complaint of HIBTAI. The Intermediate Appellate Court affirmed the dismissal on February 4, 1986. The HIBTAI filed a petition for review in this Court and, on June 30, 1987, the petition was denied for lack of merit. 47 The Court ruled that the HIBTAI had no personality to assail the contracts and to invoke P.D. No. 1517 for its members, including Nakpil. Shortly, thereafter, in 1988, a complaint was filed against the GSIS by one of the tenants entitled Dy v. Government Service Insurance System.48 In 1994, a similar complaint was filed against the GSIS by another tenant entitled Cruz v. GSIS.49 Even Nakpil admitted that the MTDC was prevented by the HIBTAI and its members from undertaking any repairs in the building. The only recourse of the MTDC was for the repair/rehabilitation of the building through the Office of the City Engineer/City Building Official. Thus, in 1995, it requested for an immediate ocular inspection of the building to determine the condition and safety of the building under Sections 214 and 215 of the National Building Code. The MTDC had no involvement in the actual

repairs/rehabilitation of the building, nor in the selection, supervision and control of the laborers to initially repair/rehabilitate the building. Moreover, Atty. Nakpil failed to present preponderance of evidence to prove that any of the laborers under the Office of the City Building Official/City Engineer carried away his books, table, painting, and typewriter. Villanueva merely testified that the laborers carried away "things they could carry." The evidence of Nakpil shows that the mezzanine floor was dark, as the lights had been turned off to prevent a conflagration. If at all the laborers had taken any of the materials from any of the rooms in the building, these were building materials which they were authorized to carry away under Section 10, Rule II of the Implementing Rules of the National Building Code which reads: 10. The building/structure as repaired or in case of demolition, the building materials gathered after the demolition thereof shall be held by the OBO until full reimbursement of the cost of repair, renovation, demolition and removal is made by the owner which, in no case, shall extend beyond thirty (30) days from the date of completion of the repair, renovation, demolition and removal. After such period, said building materials of the building thus repaired, renovated or removed shall be sold at public auction to satisfy the claim of the OBO. Any amount in excess of the claim of the government realized from the sale of the building and/or building materials shall be delivered to the owner. Assuming that Atty. Nakpil lost any of his personal properties, at the very least, he should have inquired from the office of the City Engineer/City Building Official and requested that they be returned to him. WHEREFORE, premises considered, the petition in G.R. No 160867 is DENIED. The petition in G.R. No. 160886 is GRANTED. The Decision of the Court of Appeals is REVERSED AND SET ASIDE. The decision of the Regional Trial Court is AFFIRMED. No costs. SO ORDERED.

G.R. No. 72456 February 19, 1987 LUZ J. HENSON, petitioner, vs. THE INTERMEDIATE APPELLATE COURT, ELY FUDERANAN and LUISA COMMENDADOR, respondents.

GUTIERREZ, JR., J.: Whether or not the judicial interpretation of the lease contract amounts to the courts' contracting for the parties is the issue in this petition for review of the decision of the then Intermediate Appellate

Court which upheld the Court of First Instance of Manila dismissing the petitioner's complaint for recovery of the balance of unpaid rentals due for one year under the lease contract in question. The petitioner leases out office spaces in her building at #494 Soldado Street, Ermita, Manila. The lessee in the disputed lease contract was designated as Sto. Nio Travel and Tour Agency, a sole proprietorship duly organized and existing under the laws of the Philippines, represented by private respondent Ely Fuderanan, its President and General Manager. On May 15, 1980, the petitioner received the sum of P 8,000.00 as "reservation deposit" for Apartment No. 116 at Luz J. Henson Building for which she issued a receipt to private respondent Fuderanan as follows: This reservation is good up to May 15, 1980, at 4:00 P.M.; failure to sign the Lease Contract, pay the required Three (3) months advance rental and Three (3) months guarantee deposits, the reservation is forfeited, monthly rental is P 2,000.00-net of W. H. Tax. Lease Contract is for one year. On the same day, the petitioner and private respondent Fuderanan entered into a lease contract which in part, provides: 1. That this contract shall have a duration of one year, commencing from May 15, 1980; Provided that, at the expiration hereof, the lease shall be deemed renewed on a month to month basis under the same terms and conditions as this contract, unless either party, at least one month before this contract expires, informs the other in writing of his desire not to be bound anymore after said period; Provided Further, that should LESSEE terminate this contract before its termination or be cancelled for any of the causes enumerated, the LESSEE shall for his breach of this contract, have his guarantee deposit automatically forfeited and still be liable to LESSOR as penalty and liquidated damages for the rentals of the unexpired portion of this lease, irrespective of whether or not LESSOR subsequently finds another person to lease the vacated premises for the duration of said unexpired portion; 2. That LESSEE agrees to pay rentals for the premises leased as abovedescribed at the rate of TWO THOUSAND PESOS Net of Withholding Tax (P2,000.00), Philippine Currency, a month, due and payable without need of further demand and notice on the due date of the corresponding month, at LESSOR's office or residence; LESSEE shall pay in advance the amount of SIX THOUSAND PESOS (P6,000.00), Philippine Currency, as rentals for the first two (2) months of this contract and one month end of lease. Rentals are payable monthly in advance. A fraction of a month is considered one month rental; Upon execution of this contract, the LESSOR (should be LESSEE) (shall) deposit with the LESSOR the amount equivalent to SIX THOUSAND PESOS (P6,000.00), three months rental. This deposit shall answer for any damages, losses, breakage, utilities destroyed

including damages caused by renovation done on the leased premises and any extensions thereof, and shall be returned only upon expiration of this Lease Contract; Provided, that all Meralco Bills are fully paid and that charges for any and all long distance calls are paid duly certified by the PLDT Co. Nothing herein contained shall be understood as granting the LESSEE the right to require, before the termination of this lease, that this deposit shall be applied against over due rentals and other outstanding accounts owing to LESSOR in order to keep the LESSEE's account current, deposits bear no interest. xxx xxx xxx Pursuant to the lease contract between the petitioner and private respondent Fuderanan, the latter paid Henson the amount of P6,000.00 in cash as deposit for rentals, water service and four keys (Exhibit A-1) and P1,660.00 in cash and P4,640.00 in a postdated check as rentals due from May 15, 1980 to July 14, 1980 (Exhibit A-1 Exhibit D). This postdated check was later replaced by another postdated check of private respondent Luisa Commendador which was dishonored due to insufficiency of funds as indicated by the bank's dishonor slip (Exhibit D-1). On May 30, 1980, the Chief of the Licensing and Inspection Division of the Bureau of Tourism Services, Ministry of Tourism disapproved the request of the private respondents to transfer their office to the premises owned by the petitioner on the ground that the place failed to meet the minimum 50 square meter-space requirement of the Bureau (Exhibit 6). On June 10, 1980, the private respondents informed the petitioner in writing that they had to vacate the leased premises in question on or about June 14, 1980 in view of the disapproval of their request to operate their business in the office space rented from the petitioner (Exhibit B). On June 16, 1980, the petitioner notified the private respondents in writing of the dishonor of Commendador's postdated check (Exhibit C). On July 9, 1980, that petitioner wrote the private respondents demanding that they make good their dishonored check in compliance with the terms and conditions of their lease contract (Exhibits F and F1). On July 18, 1980, the private respondents replied by stating that they had to rescind the lease contract and requested the refund of the amounts they paid by way of advance and deposit rentals less the amount of rental due (Exhibit 5). Their request was not granted by the petitioner (Exhibits E and E-1). On January 16, 1981, the petitioner filed an action against the private respondents to recover the value of the dishonored check worth P4,640.00 plus 12% interest per annum from May 30, 1980 until paid and the amount of P22,000.00 as rental fees corresponding to the unexpired portion of the term of the lease contract between them. On March 24, 1982, the private respondents filed their answer, which was later amended on July 29, 1981, alleging, among others, that private respondent Commendador was wrongly sued because she was not a party to the lease contract having issued the check merely for accommodation purposes; that the private respondents did not make good the dishonored check since the Ministry of Tourism had

disapproved their request to transfer their office to the petitioner's premises; and that under the circumstances the private respondents had no other alternative but to rescind the lease contract and vacate the premises. A counterclaim was filed for the refund of P6,200.00 representing the advance rentals paid by the private respondents and for the award of moral damages, attorney's fees, and expenses of litigation. After trial, the trial court, on March 18, 1982, rendered judgment in favor of the private respondents. The dispositive portion of the decision reads: WHEREFORE, judgment is hereby rendered dismissing the complaint of the plaintiff Luz J. Henson against the defendants Ely Fuderanan and Luisa Commendador, doing business under the name and style "Sto. Nino Travel and Tours Agency," and upon the latter's counterclaim against the former, ordering the plaintiff to refund to the defendants the amount of P5,600.00. Costs against the plaintiff. The appellate court affirmed the trial court's judgment. A motion for reconsideration was denied in a resolution dated October 9, 1985. Hence, this present petition assigning as errors the following: I The Intermediate Appellate Court erred when its decision' made a new contract' for the parties. II The Intermediate Appellate Court erred in rendering a decision not sanctioned by equity. The Intermediate Appellate Court dismissed the petitioner's complaint thereby giving the private respondents the right to a refund of the sum they advanced as rental fees when they executed the contract of lease. The court did not find the private respondents in breach of their obligations under said contract. In the words of the appellate court: The reason for the non-compliance of the obligation to occupy the leased premises came from a third party. By "third party," it meant the Chief of the Licensing and Inspection Division of the Bureau of Tourism Services, Ministry of Tourism. We are constrained under the circumstances of this case to uphold the time-honored principle that contracts are respected as the law between the contracting parties (Castro v. Court of Appeals, 99 SCRA 722; Escano v. Court of Appeals, 100 SCRA 197). In the case at bar, the lease contract executed by the petitioner and the private respondents remains as the law between them. In litigations involving the adjudication of rights and obligations between the lessor and the lessee, the lease contract shall govern (Chua Peng Hian v. Court of Appeals, 133 SCRA 572).

The disputed lease contract is plain and unequivocal in its terms. The stipulations are expressed in clear and explicit language that leaves no doubt as to the intention of the contracting parties. Nowhere is it provided in the contract that the fulfillment of the terms and conditions of the lease depend upon an act of a third party, i.e., the final action to be taken by the Chief of the Licensing and Inspection Division of the Bureau of Tourism. Neither is there any indication from the evidence presented that would justify either of the contracting parties to impugn the lease contract they executed. The facts of the case constrain us to apply the rule that contracts are to be interpreted according to their literal meaning when the terms and conditions are clear and leave no doubt as to the intention of the contracting parties (Gonzales v. Court of Appeals, 124 SCRA 630; Matienzo v. Servidad, 107 SCRA 276; see also Article 1370 of the Civil Code of the Philippines). It was error on the part of the appellate court to make room for construction of the provisions of the subject lease contract when the case plainly calls for application thereof. We reiterate our ruling in the case of San Mauricio Mining Company v. Ancheta (105 SCRA 371, 418) that: xxx xxx xxx ... The primary and elementary rule of construction of documents is that when the words or language thereof is clear and plain or readily understandable by any ordinary reader thereof, there is absolutely no room for interpretation or construction anymore. ... (See also Pichel v. Alonzo, 111 SCRA 341) The first stipulation in the disputed lease contract provided for a specific period of one year as the duration of the lease. This ought to be followed (See Vda. de San Juan v. Tan, 116 SCRA 447). For the respondent court to hold that the private respondents-lessees are justified in disregarding their obligation to pay for the leased premises throughout the term of the lease due to the requirement of the Ministry of Tourism that travel agencies must operate their business in an area mandated by the rules is tantamount to the court's revising the contract for the parties. The courts, be it the original trial court or the appellate court, have no power to make contracts for the parties (Top-Weld Manufacturing, Inc. v. ECED, S.A., 138 SCRA 118). Given the simple and unambiguous document of lease in this case, the lessees, at the most, would be entitled to a refund of the advance rental fees only if the rule on equity can be applied under the circumstances. However, there are no circumstances in this case that warrant the application of equitable considerations. The predicament in which Sto. Nio Travel and Tour Agency found itself is entirely of its own making. It should have ascertained all the rules and requirements for the operation of a travel agency before it even started to look for premises to house its office. The petitioner had absolutely nothing to do with the private respondents' violating the requirements. Moreover, the record shows that the petitionerlessor offered the occupancy of the bigger rooms in her apartments for lease to the private respondents in order that they could meet the minimum space requirement of 50 square meters ordered by the Ministry of Tourism. The private respondents declined the offer because they were not willing to pay for the corresponding increase in the rental fees. The appellate court opined that the petitioner, in offering the bigger rooms for lease at a higher rent value, gave the private respondents no other choice but to stop the operation of their travel agency

business as against renting one of the bigger rooms and operating at a loss in view of the increased rental fees. The records do not show upon what evidence the respondent court based this finding. The questioned decision itself shows that the court's conclusion is purely conjectural and cannot support the application of equity. It states: However, the record shows that defendants-appellees finally rejected leasing these larger rooms because the rents were "different." We presume that, by the word "different," appellees meant the rents were higher which they could not afford. (Emphasis supplied). The rule that travel agencies should have at least 50 square meters of office space is a reasonable regulation intended to dignify the business as a whole and avoid fly-by-night operators working out of cramped and dingy quarters. If the private respondents did not bother to look into this requirement before entering into a lease contract, they have no right to visit upon the petitioner the results of their negligence. The petitioner contends that under the disputed lease contract, the lessor is not bound to make sure that her lessee realizes profit out of the latter's travel agency business while occupying the leased premises in the same way that it is not incumbent upon her to see to it that her lessee observes the regulatory measures laid down by the Ministry of Tourism for travel agencies. She states that the only business with which she is concerned is that of leasing office spaces in her apartment building to those lessees who agree to the terms and conditions of the lease such as the private respondents. This may be a rigid and hardhearted approach to the problem but it is correct. The contract of lease was never conditioned on the lessees' ability to comply with governmental requirements pertaining to their business. We also note that the contract was executed on May 15, 1980. Part of the consideration was in the form of a postdated check for P4,600.00. The denial by the Inspection Division of the Bureau of Tourism Services was dated May 30, 1980. When the postdated check fell due the following day, May 31, the funds to meet the check were insufficient and the bank had to dishonor the check. The private respondents argue that their failure to comply with their obligations under the lease contract may be justified by Stipulation No. 9 in the lease contract which provides that: Compliance With Law. The LESSEE shall promptly obey, execute and fulfill any and all laws, ordinances, rules, regulations and orders of the national or city government or of any bureau, board or commission for the sanitation and safety of the leased premises. The aforequoted stipulation in the lease contract must be read in the context of the petitioner's business of leasing office spaces, not in that of the private respondents' travel agency business. The laws, ordinances, rules, regulations, and orders which the lessee ought to obey, execute, and fulfill pertain to those relating to the business of the petitioner such as the payment of expenses for the deed of lease, the settlement of electric, water and phone bills or the installation of safety measures in cases of fire and other similar emergencies. In view of the foregoing discussion, there is no question that the subject lease contract which is the law between the parties herein admits of no gap that the rule on equity may rightfully bridge.

WHEREFORE, the petition is hereby GRANTED. The decision appealed from is REVERSED and SET ASIDE and a new one is rendered: 1. Ordering private respondent Ely Fuderanan to replace or pay the value of the dishonored check of P4,640.00 with 12% interest per annum from May 30, 1980 until paid; 2. Ordering private respondent Ely Fuderanan to pay the rentals corresponding to the unexpired portion of the lease provided, however, that the P6,000.00 deposited by the private respondent which the petitioner is obliged to return may be offset against the unpaid rentals under the lease contract; and 3. Ordering private respondent Ely Fuderanan to pay P2,000.00 as attorney's fees plus costs of the suit. SO ORDERED. Fernan (Chairman), Alampay, Paras, Padilla and Cortes, JJ., concur. Bidin J., * took no part.

[G.R. No. 154895. November 18, 2004]

JOSIE GO TAMIO, petitioner, vs. ENCARNACION TICSON, respondent. DECISION PANGANIBAN, J.: In general, a lessee is not allowed to challenge the title of the lessor. Indeed, it is immaterial whether the lessor had any title at all to the property at the time the lease was commenced. However, due to the peculiar circumstances in the present case, the Court makes an exception to this rule. Otherwise, it would sanction unjust enrichment in favor of the respondent and cause unjust poverty to the petitioner.

The Case The instant Petition for Review on Certiorari[1] seeks to set aside the February 28, 2002 Decision[2] and the April 30, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 62908. The dispositive portion of the challenged Decision reads:

WHEREFORE, the instant petition is hereby DENIED DUE COURSE and DISMISSED. The Decision, dated March 24, 1999, is hereby AFFIRMED.[4] The assailed Resolution denied reconsideration of the foregoing disposition. The March 24, 1999 Decision[5] of the Regional Trial Court (RTC)[6] of Manila, upheld by the CA, disposed as follows: WHEREFORE, the appealed judgment is hereby affirmed with modification, to wit: 1) Ordering [petitioner] to pay [respondent] the amount of P86,000 as payment for rental arrearages covering the period September, 1996 to June, 1997 and from July, 1997 to December, 1997 at a monthly rate of P5,000 and P6,000 respectively. *Petitioners+ counterclaim is hereby dismissed for lack of merit.[7]

2)

On the other hand, the Decision[8] of the Metropolitan Trial Court (MTC)[9] of Manila (Branch 5), which was affirmed with modification by the RTC, dismissed respondents complaint for unlawful detainer against the petitioner.

The Facts The CA summarized the facts in this manner: The Roman Catholic Archbishop of Manila (RCAM) is the owner of an apartment unit originally leased to Mr. Fernando Lopez Lim. After the demise of Mr. Fernando Lim, [his] children became the occupants thereof. One of [them, Valentine Lim] requested respondent Encarnacion Ticson, for financial assistance [in order] to purchase the apartment unit from RCAM. In exchange, Valentine Lim executed a waiver in favor of respondent. On June 15, 1996, respondent executed a contract of lease *in favor of petitioner], on the basis of the waiver from Valentine Lim respecting the apartment unit, for a period of three (3) months. After signing the contract and paying the rentals, [petitioner] discovered that the apartment was actually owned by RCAM. Meanwhile, after the expiration of the three (3) month lease, respondent demanded petitioner to vacate the premises for the use of the formers family members. Petitioner failed to comply, giving rise to the instant case for unlawful detainer. After trial, the Metropolitan Trial Court (MTC) found respondent guilty of concealment [amounting to] fraud when she misrepresented that she was the owner or authorized lessor of the apartment. Consequently, the contract did not produce any legal effect, much less, rights or obligations. Thus, the MTC ordered the dismissal of the complaint for unlawful detainer. Unsatisfied therewith, respondent appealed the dismissal with the Regional Trial Court (RTC). After review thereof, the RTC found that the concealment did not amount to fraud, but [was merely due] to

respondents honest belief that she became or will eventually become the owner of the property by reason of the said waiver. Moreover, the RTC found that if [petitioner] has indeed questioned the [respondents] title, she should have communicated with RCAM immediately since she came to know of RCAMs ownership over the subject property early on. On the basis thereof, the RTC ordered petitioner to pay respondent P86,000.00 as rental arrearages from September 1996 to June 1997 and from July 1997 to December 1997 at a monthly rate of P5,000.00 andP6,000.00 respectively, and dismissed petitioners counterclaim for lack of merit.[10] Meanwhile, on March 3, 1998, petitioner entered into a Contract of Lease[11] over the same property with RCAM for a term of one year, commencing from January 1, 1998 to December 31, 1998. In that Contract, petitioner assumed to pay the rent corresponding to her use and occupation of the property prior to its execution; that is, from June 1, 1996 to December 31, 1997.

Ruling of the Court of Appeals The CA agreed with the RTC that the misrepresentation of respondent as the owner or lessor of the property did not amount to fraud, but was merely an error under Article 1343 of the Civil Code. The appellate court added that she must have acquired legal possession over the apartment unit as an assignee thereof, considering the waiver/assignment executed in her favor by the previous lessees. The appellate court added that petitioner herself had been negligent in not immediately communicating with the owner of the property -- the Roman Catholic Archbishop of Manila (RCAM) -regarding her discovery, thereby implying her acknowledgment of respondents right to sublease the property. Consequently, while holding that, as found by the lower court, RCAM and petitioner entered into a new Contract of Lease that rendered the instant case moot and academic, the CA ordered petitioner to pay rental arrearages to respondent for the period September 1996 to December 1997. Hence, this Petition.[12]

Issue The lone issue presented for our consideration is as follows: Whether or not petitioner should be held liable to pay respondent the amount of P86,000.00 representing the alleged rental arrearages from September 1996 to December 1997.[13]

The Courts Ruling The Petition has merit.

Lone Issue: Entitlement to Rental Arrearages Petitioner contends that she is not bound by her lease agreement with respondent, because the latter never acquired legal possession of the property. The assignment/waiver of rights executed by Valentine Lim was null and void, as the lease of her father (Fernando) with RCAM had long been terminated for nonpayment of rentals. With the invalidity of the assignment, respondent acquired no rights that she could transmit. Assuming arguendo that Valentines lease was still subsisting, petitioner argues that the consent of RCAM should have been obtained. Petitioner further avers that under her Contract with RCAM, she undertook to pay rentals corresponding to the holdover period. Hence, she would in effect be paying the rental twice, if she were still to pay respondent. The latter would be unjustly enriched at petitioners expense, which should not be allowed by the Court. The assignment of a lease by the lessee involves a transfer of rights and obligations pertaining to the contract; hence, the consent of the lessor is necessary.[14] Article 1649 of the Civil Code is explicit: Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. The objective of the law in prohibiting the assignment of the lease without the lessors consent is to protect the owner or lessor of the leased property.[15] In the case of cession or assignment of lease rights on real property, there is a novation by the substitution of the person of one of the parties -- the lessee.[16] The personality of the lessee, who dissociates from the lease, disappears; only two persons remain in the juridical relation -- the lessor and the assignee who is converted into the new lessee.[17] In the instant case, RCAM never assented to the assignment of the lease. This is apparent from the December 11, 1997 letter[18] of its counsel, Atty. Socrates R. Rivera, stating that Fernando Lim was no longer its tenant for his failure to pay the rentals as of August 1988. As a rule, this letter may not necessarily result in the cessation of Mr. Fernandos right to possess the leased premises. Under the law, mere nonpayment of rentals without the lessors demand to pay and vacate is not sufficient to oust the lessee from the leased premises.[19] The letter, however, demonstrates the lessors lack of consent to the assignment. There is no evidence to show that RCAM subsequently agreed to the substitution of the original lessee by respondent. In fact, the only lessee it ever recognized was Fernando Lim. In the same letter, it was stated that neither *petitioner+ nor *respondent] have the right to [possess] said apartment considering that it [was] Mr. Fernando Lopez Lim whom our client RCAM ha[d] contractual relationship; unfortunately said tenant *has ceased+ to be such. Neither does respondent appear to have paid monthly rents to RCAM to apprise it sufficiently of her occupation of the subject premises. Hence, it cannot be charged with knowledge of, much less implied consent to, this fact. As against RCAM, which has not consented to the assignment, respondent-assignee obtains no rights to the leased premises. Consequently, the sublease between her and petitioner is not binding on it. With the abandonment of the lease by the original lessee through his unauthorized assignment, the right to the possession of the apartment reverted to the owner. Being the owner, RCAM enjoys the prerogative to enter into a new lease contract over the property with anyone it

chooses.[20] Unfortunately for respondent, it chose to grant to petitioner leasehold rights to the subject premises by virtue of the Contract entered into on March 3, 1998. It was agreed thereunder that petitioner would pay RCAM reasonable compensation for the entire period of her occupancy of the property. To allow respondent to receive from petitioner rental arrearages for the period September 1996 to December 1997, notwithstanding the latters agreement with the owner to pay rent for her occupancy of the property, would constitute unjust enrichment at the expense of petitioner. Under Article 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another.[21] Prior to the March 3, 1998 Contract, petitioner and respondent were technically strangers to the property; both were unlawfully withholding its possession from the owner. Petitioner cannot therefore be faulted in assuming to pay a reasonable value for her occupancy of the property as a sign of good faith. On the other hand, nonpayment of rentals of respondent to RCAM -- notwithstanding her receipt from petitioner of the rental covering the term of the sublease contract -- is indicative of bad faith. Having assumed to pay the rentals to RCAM, petitioner should no longer be required to pay rental arrearages to respondent. To do so would be to sanction unjust enrichment in favor of respondent and to cause unjust poverty to the petitioner. A double burden would be imposed upon the latter, because she would be paying twice for her use of the same premises for the same period of time. We are not unmindful of the standing rule that a lessee is estopped or prevented from disputing the title of the landlord in an action for recovery of possession of the leased premises.[22] In Geminiano v. Court of Appeals,[23] we stated: x x x. The private respondents, as lessees who had undisturbed possession for the entire term under the lease, are then estopped to deny their landlords title, or to assert a better title not only in themselves, but also in some third person while they remain in possession of the leased premises and until they surrender possession to the landlord. This estoppel applies even though the lessor had no title at the time the relation of lessor and lessee was created, and may be asserted not only by the original lessor, but also by those who succeed to his title.[24] Indeed, the relation of lessor and lessee does not depend on the formers title but on the agreement between the parties, followed by the possession of the premises by the lessee under such agreement.[25] As long as the latter remains in undisturbed possession, it is immaterial whether the lessor has a valid title -- or any title at all -- at the time the relationship was entered into.[26]Between the present parties, the lease -- which was actually a sublease -- was effective. And respondent had a colorable right to lease the premises by virtue of the assignment even if, as against the owner, both the assignment and the sublease were ineffectual. However, considering the peculiar circumstances availing in the present case, equity demands that such rule be relaxed. As discussed earlier, it would be grossly unjust if, after having paid the owner prior rentals for June 1996 to December 1997, petitioner would still be required to pay again the same rental arrearages to respondent for the latters retention of the property after the termination of sublease contract. Note that the sublease had already expired, and that the arrearages refer to a subsequent period not covered by the said sublease. It is worth reminding everyone of our pronouncement in Air Manila v. CIR:[27] Equity as the complement of legal jurisdiction seeks to reach and to complete justice where courts of law, through the

inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so. Equity regards the spirit and not the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts. WHEREFORE, the Petition is GRANTED and the assailed Decision and Resolution SET ASIDE. The dispositive portion of the August 14, 1998 Decision of the Metropolitan Trial Court of Manila is hereby REINSTATED. No costs. SO ORDERED. Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur. Corona, J., on leave.

G.R. No. 154765

March 29, 2007 BERCERO, Petitioner,

PEDRO T. vs. CAPITOL DEVELOPMENT CORPORATION,1 Respondent. DECISION AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court assailing the Decision2 dated February 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 56484 which set aside the Decision3 dated May 27, 1996 of the Regional Trial Court, Branch 88, Quezon City (RTC-Branch 88) in Civil Case No. Q-92-11732, and the CA Resolution4 dated August 29, 2002 which denied petitioners Motion for Reconsideration. The factual background of the case is as follows: On January 31, 1983, Capitol Development Corporation (respondent) leased its commercial building and lot located at 1194 EDSA, Quezon City to R.C. Nicolas Merchandising, Inc., (R.C. Nicolas) for a 10-year period or until January 31, 1993 with the option for the latter to make additional improvements in the property to suit its business and to sublease portions thereof to third parties.5 R.C. Nicolas converted the space into a bowling and billiards center and subleased separate portions thereof to Midland Commercial Corporation, Jerry Yu, Romeo Tolentino, Julio Acuin, Nicanor Bas, and Pedro T. Bercero (petitioner). Petitioners sublease contract with R.C. Nicolas was for a three-year period or until August 16, 1988.6 Meanwhile, for failure to pay rent, respondent filed an ejectment case against R.C. Nicolas before the Metropolitan Trial Court, Branch 41, Quezon City (MeTC-Branch 41), docketed as Civil Case No. 52933. Respondent also impleaded the sub-lessees of R.C. Nicolas as parties-defendants.

During the pendency of Civil Case No. 52933, several sub-lessees including petitioner, entered into a compromise settlement with respondent.7 In the compromise settlement, the sub-lessees recognized respondent as the lawful and absolute owner of the property and that the contract between respondent and R.C. Nicolas had been lawfully terminated because of the latters non-payment of rent; and that the sub-lessees voluntarily surrendered possession of the premises to respondent; that the sub-lessees directly executed lease contracts with respondent considering the termination of leasehold rights of R.C. Nicolas. Petitioner entered into a lease contract with respondent for a three-year period, from August 16, 1988 to August 31, 1991.8 On October 21, 1988, respondent and petitioner, as well as several other sub-lessees of R.C. Nicolas, filed a Joint Manifestation and Motion in Civil Case No. 52933, manifesting to the MeTC-Branch 41 that they entered into a compromise settlement and moved that the names of the sub-lessees as partiesdefendants be dropped and excluded.9 On November 14, 1988, R.C. Nicolas filed a complaint for ejectment and collection of unpaid rentals against petitioner before the Metropolitan Trial Court, Branch 39, Quezon City (MeTC-Branch 39), docketed as Civil Case No. 0668.10 On April 18, 1989, MeTC-Branch 39 rendered a Decision in favor of R.C. Nicolas and ordered the eviction of petitioner from the leased premises.11 Dissatisfied, petitioner filed an appeal before the Regional Trial Court, Branch 78, Quezon City (RTCBranch 78). R.C. Nicolas filed a Motion for Execution Pending Appeal which was opposed by petitioner. In an Order dated October 4, 1990, RTC-Branch 78 directed the issuance of a writ of execution pending appeal since petitioner failed to file a supersedeas bond and periodically deposit the rentals due during the pendency of the appeal.12 Accordingly, on October 22, 1990 a writ of execution was issued.13 Sometime in November 1990, petitioner was evicted from the leased premises.14 Petitioner assailed the Order dated October 4, 1990 in a petition for certiorari with the CA, docketed as CA-G.R. SP No. 23275, but the petition was denied due course and dismissed by the CA in a Decision dated December 28, 1990.15 On September 3, 1991, respondent filed a Manifestation in Civil Case No. 52933 urging MeTC-Branch 41 to order R.C. Nicolas to desist from harassing respondent and petitioner, and to co nfirm respondents right of possession to the premises in the light of the ejectment case filed by R.C. Nicolas against petitioner.16 Two months later, or on November 13, 1991, MeTC-Branch 41 rendered a Decision in Civil Case No. 52933 in favor of respondent and ordered R.C. Nicolas to pay its unpaid rentals from September 1986 until October 1988.17 Meanwhile, since his eviction in November 1990, petitioner made repeated demands on respondent for the restoration of his possession of the commercial space leased to him to no avail. 18

Thus, on March 24, 1992, petitioner filed a complaint for sum of money with attachment and mandatory injunction with damages against the respondent before the RTC-Branch 88, docketed as Civil Case No. Q-92-11732.19 On May 27, 1996, RTC-Branch 88 rendered its Decision20 in favor of petitioner, the dispositive portion of which reads: WHEREFORE, premises rendered, this Court finds for the plaintiff and orders the defendant: 1) to restore plaintiffs possession of the rented building located at 1194 EDSA, Quezon City for the next three years effective from receipt of the copy of this decision; 2) to pay the plaintiff the following: a. P480,000.00 actual damages b. P 50,000.00 moral damages c. P 50,000.00 exemplary damages d. P 50,000.00 attorneys fees 3) to pay the costs. Accordingly, the counterclaim filed by the defendant Capitol Development Corporation is hereby DISMISSED. SO ORDERED.21 The RTC held that respondent miserably failed to comply with its obligation under Article 1654 of the New Civil Code due to its apathy and failure to extend any assistance to the petitioner and was, therefore, liable for the restoration of petitioners possession and the payment of actual damages corresponding to lost profit, cash, generator, and other items petitioner lost due to the eviction, as well as moral and exemplary damages and attorneys fees. Dissatisfied, respondent filed an appeal with the CA, docketed as CA-G.R. CV No. 56484. On February 11, 2002, the CA rendered its Decision22 setting aside the Decision of RTC-Branch 88, to wit: WHEREFORE, premises considered, the Decision dated May 27, 1996 of the Regional Trial Court of Quezon City, Branch 88, in Civil Case No. Q-92-11732, is hereby REVERSED and SET ASIDE. No pronouncement as to costs. Applying the equitable principle of estoppel, the CA held that although respondent as lessor failed to ensure the peaceful possession of petitioner as its lessee in the subject premises, the latter is not entitled to damages since he was aware of the facts which led to his ouster from the subject premises; and that petitioner was well aware that respondent had a 10-year lease contract with R.C. Nicolas which

was subject of an ejectment suit that was still pending litigation when petitioner executed a lease contract with respondent. On March 5, 2002, petitioner filed his Motion for Reconsideration.23 On August 29, 2002, the CA issued its Resolution denying petitioners Motion for Reconsideration.24 Hence, the present Petition anchored on the following grounds: I. THE HONORABLE COURT OF APPEALS CLEARLY COMMITTED GRAVE ERROR AND ABUSE OF DISCRETION IN APPLYING THE PRINCIPLE OF ESTOPPEL TO PETITIONER II. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR BY DISREGARDING THE LAW, JURISPRUDENCE AND EVIDENCE IN DELETING THE AWARD MADE BY THE LOWER COURT OF DAMAGES AND REVERSING THE THREE (3) YEAR POSSESSION OF THE SUBJECT PROPERTY GIVEN TO THE PETITIONER25 Petitioner argues that the principle of estoppel is inapplicable because he dealt with respondent in good faith and relied upon the latters representations that the lease of R.C. Nicolas was already terminated at the time he contracted with the latter; that respondent assured him that it had a valid and legal right to enter into a new lease contract with him; that he is entitled to damages since respondent did not even lift a finger to protect him when R.C. Nicolas filed an ejectment case against him; and that respondent acted in utter bad faith when it still refused to restore his possession after he was evicted in November 1990, notwithstanding that his lease contract with respondent was valid until August 31, 1991. Respondent, on the other hand, counters that the CA correctly applied the principle of estoppel since petitioner voluntarily entered into a lease agreement with respondent despite full knowledge that the latters lease with R.C. Nicolas over the subject premise had yet to be judicially terminated; and that petitioner knew that at the time he contracted with respondent, he still had existing obligations to R.C. Nicolas relating to their sub-lease agreement. Under Article 1654 (3) of the New Civil Code, to wit: Art. 1654. The lessor is obliged: xxxx (3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. it is the duty of the lessor to place the lessee in the legal possession of the premises and to maintain the peaceful possession thereof during the entire term of the lease.26 To fully appreciate the importance of this provision, the comment of Manresa on said article is worth mentioning:

The lessor must see that the enjoyment is not interrupted or disturbed, either by others acts x x x or by his own. By his own acts, because, being the person principally obligated by the contract, he would openly violate it if, in going back on his agreement, he should attempt to render ineffective in practice the right in the thing he had granted to the lessee; and by others acts, because he must guarantee the right he created, for he is obligated to give warranty in the manner we have set forth in our commentary on article 1553, and, in this sense, it is incumbent upon him to protect the lessee in the lat ters peaceful enjoyment.27 The obligation of the lessor arises only when acts, termed as legal trespass (perturbacion de derecho), disturb, dispute, object to, or place difficulties in the way of the lessees peaceful enjoyment of the premises that in some manner or other cast doubt upon the right of the lessor by virtue of which the lessor himself executed the lease, in which case the lessor is obligated to answer for said act of trespass.28 The lessee has the right to be respected in his possession and should he be disturbed therein, he shall be restored to said possession by the means established by the law or by the Rules of Court.29 Possession is not protection against a right but against the exercise of a right by ones own authority.30 Petitioner claims that respondent as lessor was obliged to restore his possession following his eviction from the premises. The Court disagrees. Void are all contracts in which the cause or object does not exist at the time of the transaction.31 In the present case, the lease contract between petitioner and respondent is void for having an inexistent cause - respondent did not have the right to lease the property to petitioner considering that its lease contract with R.C. Nicolas was still valid and subsisting, albeit pending litigation. Having granted to R.C. Nicolas the right to use and enjoy its property from 1983 to 1993, respondent could not grant that same right to petitioner in 1988. When petitioner entered into a lease contract with respondent, the latter was still obliged to maintain R.C. Nicolass peaceful and adequate possession and enjoyment of its lease for the 10-year duration of the contract. Respondents unilateral rescission of its lease contract with R.C. Nicolas, without waiting for the final outcome of the ejectment case it filed against the latter, is unlawful. A lease is a reciprocal contract and its continuance, effectivity or fulfillment cannot be made to depend exclusively upon the free and uncontrolled choice of just one party to a lease contract.32 Thus, the lease contract entered into between petitioner and respondent, during the pendency of the lease contract with R.C. Nicolas, is void. There is no merit to petitioners claim of good faith in dealing with respondent. Good faith is ordinarily used to describe that state of mind denoting "honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry;33 an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render the transaction unconscientious."34 Being privy to the pendency of the ejectment case involving the leasehold rights of R.C. Nicolas since he was impleaded as a party-defendant in said ejectment case, petitioner cannot feign innocence of the existence thereof. Petitioner was fully aware that R.C. Nicolas had a lease contract with respondent which was subject of a pending litigation. It is well-settled that parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or "in equal fault".35 No suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed

to be paid, or damages for its violation, and no affirmative relief of any kind will be given to one against the other.36 Each must bear the consequences of his own acts.37 They will be left where they have placed themselves since they did not come into court with clean hands. In sum, the underlying case for sum of money filed by petitioner against respondent cannot prosper, his right of action being anchored on a contract which, for all intents and purposes, has no legal existence and effect from the start. A void or inexistent contract is equivalent to nothing; it is absolutely wanting in civil effects; it cannot be the basis of actions to enforce compliance.38 WHEREFORE, the present petition is DENIED for lack of merit. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 56484 are AFFIRMED. Petitioners Complaint and respondents Counterclaim in Civil Case No. Q-92-11732 are DISMISSED. Costs against petitioner. SO ORDERED.

G.R. No. L-12017

August 28, 1959 MADAMBA, petitioner-appellant,

JOSE L. vs. SALVADOR ARANETA, ETC., ET AL., respondents-appellees.

Tomas T. Tirona for appellant. Office of the Solicitor General Ambrosio Padilla and Assistant Solicitor General Antonio A. Torres for appellee Salvador Araneta. Melanio T. Singson for appellees. CONCEPCION, J.: This is an appeal taken by petitioner Jose L. Madamba from a decision of the Court of First Instance of Isabela denying his petition for a summary judgment and absolving the respondents herein from said petition. On August 17, 1926, Madamba filed with the Bureau of Lands Application No. 2788, for a lease contract on an agricultural public land, situated in the barrio of Patanad, municipality of Echague, province of Isabela, containing an area of 370.7969 hectares, more or less, known as Lot No. 1664, Cad. No. 210, EChague, Isabela. the contract of lease was awarded to Madamba on September 14, 1935. However, owing to delinquency in the payment of the stipulated rentals, beginning from the year 1945, said contract was, on October 2, 1953, cancelled by respondent Salvador Araneta, as Secretary of Agriculture and Natural Resources. Three motions for reconsideration, filed by Madamba November 28, 1953 and January 21 and May 3, 1954, were denied on December 8, 1953, March 15 and July 9, 1954, respectively. Hence, on October 1, 1954, Madamba filed the aforementioned petition against said officials, as well as against sixteen (16) other persons named in the petition, who allegedly, had taken possession of portions of the above-mentioned property, thru force and intimidation, in 1938 and 1939.

Although admitting nonpayment of the stipulated rentals from 1945 to 1953, petitioner maintains that the same did not justify the cancellation of the lease contract above referred to, for his aforementioned omission was allegedly due to the usurpation of portions of the leased property by the respondents already adverted to, and the Government has failed, despite several demands made by him, to thereby becoming, it is claimed, guilty of breach of its obligation, as a lessor, to keep him, as lessee, in peaceful possession of said property. This pretence is predicated upon Article 1658 of the Civil Code of the Philippines, reading: The lessee may suspend the payment of the rent in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. His Honor the Trial Judge held this provision inapplicable to the case at bar upon the ground that, when the new Civil Code became effective. In August 1950, the Government had already acquired a vested right to rescind the contract in question, under the Civil Code of Spain, pursuant to Article 1560 of which "the lessor shall not be liable for any act of mere trespass by a third person upon the leased property; but the lessee shall have a direct action against the trespasser," and "there is no trespass if the third person has acted by virtue of a right belonging to him." Moreover, this provision is substantially reproduced in Article 1664 of the Civil Code of the Philippines, reading: The lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder. There is a mere act of trespass when the third person claims no right whatever. In the case at bar, the disturbance in plaintiff's possession, with respect to small portions of the leased property, was admittedly caused by mere intruders, who acted without any color of title. What is more, it is not disputed that said property is part of the public domain. Indeed, its status as such had been settled by a final judgment, rendered way back on December 9, 1930, in Cadastral Case No. 16 of the Court of First Instance of Isabela, G.L.R.O. No. 1055, entitled "The Director of Lands vs. Arsenio E. Abad, et al." It is apparent, therefore, that the disturbance in the possession of petitioner herein was the product of an "act of mere trespass," or "perturbacion de mero hecho", for which, "the lessor shall not be liable" or "shall not be obliged to answer", in the language of the Civil Codes of Spain (Article 1560) and the Philippines (Article 1664), respectively. It may not be amiss to note that Article 1658 of our Civil COde merely implements the obligation of the lessor under the Article 1654 thereof, to make "all the necessary repairs" and "to maintain the lessee in the peaceful and adequate enjoyment of the lease," which he had under Article 1554 of the Spanish Civil Code. Hence, the "peaceful enjoyment" mentioned in Article 1658 of the Civil Code of the Philippines, is nothing but the one referred to in Article 1654 thereof, which, in turn, is identical to that alluded to in Article 1554 of the Civil Code of Spain, and the "act of mere trespass" disturbing said "peaceful enjoyment" contemplated in Article 1664 of the former, is the same "perturbacion de mero hecho" for which "the lessor shall not be liable", pursuant to Article 1560 of the latter. Needless to say, plaintiff's right to sue the intruders, who had disturbed his possession, is well settled in this jurisdiction. It is supported, not only by said Article 1560 of the Civil Code of Spain and Article 1664 of our Civil Code, but, also, by a long time of decisions of this Court (Mariano vs. De Los Santos, 97 Phil.,

191; Pitargue vs. Sorilla, 92 Phil., 5;48 Off. Gaz. [9] 3849; Lo Ching vs. Archbishop of Manila, 81 Phil., 601; Afesa vs. Ayala, 89 Phil., 292; Roman Catholic Church vs. Familiar. 11 Phil., 310; Roman Catholic Church vs. Municipality of Tarlac, 9 Phil., 450; Muyco vs. Montilla 7 Phil., 498; Bishop of Cebu vs. Mangaron, 6 Phil., 286). Obviously, plaintiff was not entitled to shift to the Government, as lessor, the task of suing the intruders, which the law explicitly imposes upon him, as lessee. Again, the action taken by the Secretary of Agriculture and Natural Resources is further supported by the Public Lands act (Commonwealth Act No. 141), and the lease contract in question, pursuant to the provisions of which, plaintiff, the Government "may elect to declare" the contract "rescinded and void" and "enter and take possession" of the property leased. Wherefore, the decision appealed from is hereby affirmed, with costs against the petitioner. It is so ORDERED. Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Endencia, and Barrera, JJ., concur.

G.R. No. 70360 March 11, 1987 AREVALO GOMEZ CORPORATION, petitioner, vs. ANDERS LAO HIAN LIONG, doing business in the name and style of "TIONGSON BAZAAR" and The Honorable SALVADOR J. VALDEZ, JR., respondents. Feria , Feria, Lugtu & Lao for petitioner. Deogracia Eufemio for respondents.

CRUZ, J.: Some agreements deteriorate into misunderstandings, turning close friends into irreconcilable adversaries and sweet harmony into bitter discord. This is one of them. On December 1, 1964, the petitioner through its Vice-President, Renato Arevalo, and respondent Andres Lao HIAN Liong, executed a "Contract of Lease" covering the petitioner's property at Magsaysay Avenue, Baguio City, for a term of fifteen years, effective September 1, 1964. The monthly rental was fixed at P2,450.00 but in addition to this the respondent agreed to construct on the interior portion of the land leased a three-story building of strong materials without right to reimbursement from the petitioner. The cost of the building was to be not less than P150,000.00, of which the sum of P45,000.00 would be contributed by petitioner. 1

Prior to the expiration of the lease on August 31, 1979, and for some time thereafter, the parties entered into negotiations to fix a new rental but could not come to any agreement. In the end, on October 2, 1979, the petitioner served on the respondent a written notice to vacate the leased premises in view of the termination of their contract. 2 When the respondent refused to comply, the petitioner filed a complaint for ejectment against him in the City Court of Baguio City. Applying Article 1670 of Civil Code, the trial court held in favor of the defendant as follows: In the case on hand, it is admitted that the 15-year lease contract between the parties expired on August 31, 1979. However, the defendant has continued occupying the leased premises thereafter and even to this day. And it was only on October 2, 1979, or after more than 15 days after the expiration of the original contract of lease, that he was given the requisite notice to vacate. It is, therefore, abundantly clear that under the law, an implied new lease had already set in when the plaintiff commenced its action for ejectment on November 19, 1979. ... 3 The trial court also extended the period of the lease by five years from October 1, 1979, pursuant to Article 1670 in relation to Article 1687 of the Civil Code, and fixed the new rentals at P10,406.00 a month. 4 Both parties appealed. The petitioner contended that the original lease had not been impliedly renewed but automatically expired on August 31, 1979. The respondent, for his part, prayed for a longer extension of fifteen years, considering the nature of his business (a bazaar) and his investment therein. He also claimed that, prior to the execution of the contract, the petitioner had assured him he could stay indefinitely in the disputed premises. 5 The Regional Trial Court of Baguio City affirmed the implied renewal of the lease but modified the appealed judgment by extending the lease for ten years from September 1, 1979, or until August 31, 1989. The respondent judge also increased the new rentals to P18,600.00 per month, effective September 1, 1979. 6 A motion for reconsideration and for new trial was filed by petitioner but the same was denied. The petition then came to us with the following assignment of errors: 1) Respondent Judge, as well as the trial judge, erred in deciding the case at bar in a way not in accordance with law or with the applicable decisions of this Honorable Court, particularly its decision in Roxas vs. Alcantara, 113 SCRA 21. 2) Respondent judge, as well as the trial judge, erred in holding that there was implied renewal ortacita reconduccion despite the refusal of respondent Liong to agree to the increased rental demanded by petitioner prior to the expiration of the contract of lease. 3) Respondent judge, as well as the trial judge, erred in holding that there was implied renewal ortacita reconduccion despite the refusal of petitioner to accept payment of rentals from respondent Liong after the expiration of the Contract of Lease. 4) Assuming for the sake of argument that Article 1687 of the New Civil Code is applicable, the trial judge erred and gravely abused his discretion by extending the lease

for five (5) years and respondent judge erred and compounded the grave abuse of discretion by extending the lease for ten (10) years. 5) Respondent judge, as well as the trial judge, erred in admitting parol evidence with respect to the term of the lease. 6) Respondent judge erred in not granting a new trial for the admission in evidence of the building permit of the new building of respondent Liong which was issued after the decision of the trial court. 7) Respondent judge erred in not admitting in evidence or taking judicial notice of the Central Bank Certification dated August 21, 1984 showing the three successive devaluations or depreciation of the Philippine peso after the decision of the trial court. 7 We address ourselves first to the submission of the respondent that the factual findings of the court a quocannot be reviewed in these proceedings which have been filed under Rule 65 of the Rules of Court. That is not exactly correct. We note that, as the caption of the petition indicates, it was filed not only under the said rule but also as an appeal by certiorari under Rule 45, which, while generally limited to questions of law, nevertheless allows review of the judgment a quo when it is based on a misapprehension of facts. 8 We shall apply this exception and treat this petition as solely filed under the latter rule. 9 It is not disputed that the original lease contract between the parties was only for fifteen years expiring on August 31, 1979. The private respondent nonetheless continued occupying the leased premises beyond that date and it was only on October 2, 1979, that he was formally served with notice to vacate. What is in issue then is whether such continued occupancy was with or without the implied acquiescence of the petitioner. The applicable provisions of Civil Code are the following: Article 1669. If the lease was made for a determinate time, it ceases upon the day fixed, without the need of a demand. Article 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Article 1682 and 1687. The other terms of the original contract shall be revived. Under the second article, an implied new lease or tacita reconduccion will set in if it is shown that: (a) the term of the original contract of lease has expired; (b) the lessor has not given the lessee a notice to vacate; and (c) the lessee continued enjoying the thing leased for fifteen days with the acquiescence of the lessor. 10 This acquiescence may be inferred from his failure to serve a notice to quit. 11 The petitioner contends that the service of an express notice to quit is not the only way to prevent the implied renewal of the lease. Demanding a higher rental is also a manifestation of non-acquiescence if

the lessee does not accept the rate demanded. In other words, failure of agreement on the new conditions of the lease results in an automatic notice to vacate upon the expiration of the original lease. In support of this position, the petitioner relies on the case of Roxas vs. Alcantara, 12 where this Court declared: ... Petitioner's letter of August 11, 1977 was a reminder to private respondent of the impending expiration of the lease contract. Exh. "A", with a statement that was in effect an offer or proposal to renew the contract on the terms and conditions, namely: (1) that the rental would be P4,000.00 a month; (2) that three years advance rental should be paid by private respondent; and (3) that a 15% yearly increase in rental would be imposed. In other words, petitioner laid down the foregoing stipulations as conditions sine qua non for any subsequent contract that might be negotiated with private respondent. Thus clear from the letter, Exh. "C", is that if private respondent were not agreeable to any or all of the new stipulations, there would be no renewal of the lease. Private respondent was to communicate his reply within fifteen days from receipt of Exh. "C", absent which petitioner would take it to mean that his conditions were acceptable to private respondent and their contract renewed on the specified terms. However, private respondent's letter, Exh. "F", evidently posted before the expiration of the period allowed within which to decide, did not give a categorical affirmative or negative answer to petitioner's proposition, and merely manifested the said lessee's desire to study the matter until end of the following month of September, 1977, or up to the termination of the then existing contract of lease, Exh. "A". Petitioner's failure to reply to the letter, Exh. "F", can only be taken to mean that he acceded to the request for additional time. For the obvious reason that the lease contract (Exh. "A") was expiring, it became more imperative for private respondent to make a final decision within and not later than the extended period which he asked for. Thus, when petitioner did not hear from private respondent at the end of the aforesaid month of September, private respondent ceased to have any legal right to possess and occupy the premises in question commencing the first day of the following month of October. As we see it, Article 1670 applies only where, before the expiration of the lease, no negotiations are held between the lessor and the lessee resulting in its renewal. Where no such talks take place and the lessee is not asked to vacate before the lapse of fifteen days from the end of the lease, the implication is that the lessor is amenable to its renewal. Where the lessor is unwilling in any event to renew the lease for whatever reason, it will be necessary for him to serve on the lessee a formal notice to vacate. As no talks have been held between the lessor and the lessee concerning the renewal of the lease, there can be no inference that the former, by his inaction, intends to discontinue it. In such a case, no less than an express notice to vacate must be made within the statutory 15-day period. Applying these principles, the Court holds that the lease was not impliedly renewed in the instant case. It is a matter of record that weeks before the deadline for the notice to vacate, the petitioner had already communicated to the respondent its intention to increase the rental. This increase had to be accepted by the respondent if he wanted the lease to be renewed. Significantly, in its letter to the

respondent on September 18, 1979, 13 the petitioner once again rejected the latter's counter-proposal and categorically declared that the increased rental of P35,000.00 was "no longer negotiable." Since this was a reply to the respondent's letter of September 14, 1979, 14 it is obvious that the increase in rental was notified to the respondent on an earlier date,and before the expiration of the original lease. As of that date, the respondent was already being informed that he would have to vacate the leased premises on August 31, 1979, unless he was willing to pay the increased rental demanded by the lessor. Stated otherwise, the respondent was on that date which was clearly before the statutory deadline being served a conditional notice to vacate. The formal notice to vacate sent by the petitioner to the respondent on October 2, 1984, was thus merely areiteration of the implied demand made to him in its previous communications. The demand was that he vacate the leased premises if he could not accept the non-negotiable increased rental of P35,000.00 a month. If the petitioner saw fit to write that letter on the said date, which admitt edly was beyond the 15-day statutory period, it was merely to repeat its insistence on the new rate as an indispensable condition to the renewal of the lease. The legal consequence of its rejection by the respondent was its obligation to vacate the leased premises because of the expiration of the lease. Even if, as urged by the respondent, we should disregard the petitioner's letter of August 31, 1979, because it was not submitted at the trial, there nevertheless are the other letters which were formally offered in evidence by the respondent himself. These are Exhibit "5" and "Exhibit "6", dated September 5 and 14, 1979, respectively, in which he rejected the petitioner's demand for the increased rental of P35,000.00. This could mean only that the demand was made earlier as the said letters were merely a reaction to such demand. These demands, as conditional notices to vacate if the petitioner's new rental was rejected, satisfied the requirement of Article 1670. It should be noted that, after August 1979, the petitioner refused to accept the respondent's payments of the old rentals, demanding, as it had the right to do, the increased rate of P35,000.00. Such a stance negates the conclusion that it was willing to renew the lease under the original conditions and had, by its silence, impliedly agreed to the retention of all its provisions. In fact, far from being silent, the petitioner repeatedly insisted on the new rentals, and, to suit its actions to its words, flatly refused the tender of the old rentals by the respondent. 15 No less worthy of attention is the circumstance that in its letter of September 18, 1979, the respondent counter-proposed a monthly rental of P27,000.00, which the petitioner rejected. 16 It could be illogical to suppose that, having done this, the petitioner would later agree to the implied renewal of the lease for the original rental of only P2,450.00, thereby forfeiting the amount of P24,550.00 every month As the original lease contract expired on August 31, 1979, and was not legally renewed, it follows that the respondent has since then been in illegal possession of the leased premises. That unlawful detainer, which has lasted more than seven years now, during which he has retained all the rights he originally enjoyed as if the lease had been validly renewed, must be terminated immediately. Coming finally to the monthly rentals to be paid by the respondent, it appears that between the rate of P35,000.00 demanded by the petitioner and the respondent's counter-proposal of P27,000.00, there is a difference of only P8,000.00. It is unfortunate that the disagreement could not be ironed out in the spirit of friendship that used to characterize the relations of the parties. 17 The respondent judge, for his part,

using as basis a fair monthly rental value of P50.00 for every square meter of the 372 square meter floor area of the property leased, fixed the monthly rental at P18,600.00. 18 Considering all the above circumstances, and by way of effecting a reasonable compromise between the parties, we hereby rule that the rentals to be paid for the use and occupancy of the leased premises beginning September 1, 1979, and until it is vacated by the respondent, shall be P30,000.00 per month, with interest at the legal rate. From the total amount due shall be deducted the sums judicially deposited by the respondent. We shall also fix the attorney's fee in the sum of P30,000.00, taking into account the efforts exerted by counsel in prosecuting this case, from the city court of Baguio and up to this Court. It is hoped that, being an experienced businessman, and with this pending litigation and its possible consequences in mind, he has taken the necessary measures to minimize the other expenses of his relocation if, as it is now, ordered by this Court. WHEREFORE, the decision of the respondent judge dated August 8, 1984, is set aside and a new decision is hereby rendered ordering respondent Andres Lao Hian Liong to: a) vacate the leased premises immediately; b) pay the petitioner monthly rentals in the amount of P30,000.00 plus legal interest, from September 1, 1979, until the leased premises are surrendered to the petitioner; and c) pay an attorney's fee in the sum of P30,000.00 and the costs of this suit. The deposits made by the respondent in court shall be deducted from the total amount due from him. This decision shall be immediately executory and no motion for reconsideration shall stay its execution. SO ORDERED. Yap (Chairman), Narvasa, Feliciano, Gancayco and Sarmiento, JJ., concur. Melencio-Herrera, J., is on leave.

G.R. No. 178527

November 27, 2009 YUKI, JR., Petitioner,

JOVEN vs. WELLINGTON CO, Respondent. DECISION DEL CASTILLO, J.:

The lessee-petitioners attempt to hold on to the property subject of the instant unlawful detainer case, by resorting to fraudulent machinations such as refusing to receive the notices to vacate, must not be countenanced. His stubborn refusal to receive the notices to vacate should not prejudice the right of the lessor-respondent, to use and enjoy the fruits of his property.

This Petition for Review on Certiorari1 assails the November 23, 2008 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 89228 granting respondents Petition for Review3 and setting aside the March 7, 2005 Decision4 of the Regional Trial Court (RTC), Branch 14, Manila. The RTC reversed and set aside the Decision5dated September 21, 2004 of the Metropolitan Trial Court (MeTC), Branch 15, Manila, granting respondents Complaint for unlawful detainer6 and ordering petitioner to vacate the premises subject matter of this case. Factual Antecedents Mr. Joseph Chua was the registered owner of a parcel of land, together with a commercial building erected thereon, situated at the corner of Espaa and Instruccion Sts., Sampaloc, Manila. In 1981, he leased a portion of the building to petitioner Joven Yuki, Jr., who put up a business therein under the name and style "Supersale Auto Supply." The contract of lease between Mr. Chua and petitioner had a term of five years but was not reduced into writing. Thereafter, the lease was renewed through a series of verbal and written agreements,7 the last of which was a written Contract of Lease8 covering the period of January 1, 2003 to December 31, 2003 at a monthly rental of P7,000.00. In November 2003, Mr. Chua informed petitioner that he sold the property to respondent Wellington Co and instructed petitioner to thenceforth pay the rent to the new owner. Proceedings before the Metropolitan Trial Court After the expiration of the lease contract, petitioner refused to vacate and surrender the leased premises. Thus, respondent filed a Complaint for unlawful detainer9 before the MeTC of Manila. The material allegations of the complaint read as follows: xxxx 3. Plaintiff [herein respondent] is the registered owner of that parcel of land together with the building existing thereon situated at 2051 Espaa St. cor. Instruccion St., Sampaloc, Manila. Plaintiffs title to said property is evidenced by the Transfer Certificate of Title No. 261682 of the Registry of Deeds of Manila, photocopy of which is attached hereto as Annex "A" and the tax declarations for the lot and improvement are attached hereto as Annexes "B" and "B-1", respectively; xxxx 5. Prior to the sale of the lot and building by the previous owner to herein plaintiff, Joseph Chua sent a notice to defendant [herein petitioner] informing him that the property is for sale giving the defendant the opportunity to exercise his pre-emptive right. Copy of said Notice is attached hereto as Annex "D"; 6. Defendant waived his right to exercise his pre-emptive right and the real property was eventually sold to herein plaintiff; 7. Plaintiff, being the new owner of the lot and building, informed defendant that his Contract of Lease with the former lessor-owner Joseph Chua will no longer be renewed as per letter dated November 3, 2003, copy of which was left at defendants store, for his refusal to acknowledge the receipt of the same. A copy of said Notice is attached hereto and made an integral part hereof as Annex "E";

8. For failure and refusal of the defendant to vacate and surrender the leased unit to plaintiff, plaintiffs counsel in turn sent a formal demand upon defendant to vacate the leased premises within ten (10) days from receipt of the formal demand in view of the expiration of the contract of lease. Copy of said letter dated January 13, 2004 is attached hereto as Annex "F". A copy was sent by registered mail but defendant failed to claim the same as evidenced by the Certification from the Central Post Office, copy of which is attached hereto as Annex "G". Another copy of the same demand letter was personally served at defendants address as attested by the sworn statement of Wilberto Co who served the said formal demand as well as the notice earlier sent by plaintiff. Copy of the Affidavit of Wilberto Co is attached hereto as Annex "H"; xxxx Respondent prayed that petitioners possession of subject premises be declared unlawful and that petitioner be ordered to vacate it. He also sought reasonable compensation for the use of the property until such time that it is surrendered to him and for the petitioner to pay him moral damages and attorneys fees. In his Answer with Counterclaim,10 petitioner denied having been served with copies of the alleged notice of sale and notice to vacate. By way of affirmative defenses, he claimed that the complaint should be dismissed for being premature as there was no allegation therein of prior referral to the barangay. Petitioner also asserted that since he was not notified by the former owner of the sale, he was deprived of his preemptive rights. Moreover, respondent has no cause of action against him because respondent is not the true owner of the property but merely acts as a representative of persons whom respondent refused to disclose. Further, petitioner argued that there was an implied renewal of lease considering that a) he did not receive a notice to vacate, b) the two months deposit and one month advance payment he gave to Mr. Chua were never returned to him, and c) respondent accepted his payments for the months of January and February 2004. Petitioner also asserted that his property rights would be violated if he is evicted because he has been operating his business in the premises for more than 20 years and has established goodwill in the area. He thus proposed that he be compensated the amount of not less than P1 million or be allowed to dispose of his stocks within a reasonable period of time, before he vacates the premises. On September 21, 2004, the MeTC-Branch 15 rendered a Decision11 in favor of the respondent, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the defendant and all persons claiming right under him: 1. to VACATE and surrender the subject property peacefully to plaintiff; 2. to PAY the plaintiff reasonable compensation for the use and occupancy of the subject premises in the amount of eight thousand (P8,000.00) pesos per month from January 1, 2004 until such time that he and all persons claiming rights under him have fully vacated the premises; 3. to PAY the plaintiff thirty thousand (P30,000.00) pesos as attorneys fees and litigation expenses.

SO ORDERED.12 Proceedings before the Regional Trial Court In time, petitioner went on appeal to the RTC contending that A. THE LOWER COURT ERRED WHEN IT RULED THAT THE PLAINTIFF-APPELLEE [herein respondent] HAD A CAUSE OF ACTION TO EVICT HEREIN DEFENDANT-APPELLANT [herein petitioner] FROM THE PREMISES. B. THE LOWER COURT ERRED WHEN IT RULED THAT THERE WAS NO IMPLIED NEW LEASE CREATED BY PLAINTIFF-APPELLEES ACCEPTANCE OF THE RENTALS MADE BY DEFENDANT-APPELLANT. C. THE LOWER COURT ERRED WHEN IT RULED THAT VALID NOTICE [TO] VACATE WAS SERVED UPON DEFENDANT-APPELLANT BY THE PLAINTIFF-APPELLEE. D. THE LOWER COURT GRAVELY ERRED WHEN IT RULED THAT DEFENDANT-APPELLANT WAS NOT DENIED HIS PREEMPTIVE RIGHT TO PURCHASE THE PROPERTY HE HAS BEEN OCCUPYING. E. THE LOWER COURT GRAVELY ERRED WHEN IT DENIED THE MOTION FOR CLARIFICATORY HEARING FILED BY DEFENDANT-APPELLANT AS WELL AS HAVING DENIED THE MOTION FOR VOLUNTARY INHIBITION. F. THE LOWER COURT ERRED WHEN IT AWARDED ATTORNEYS FEES AMOUNTING TO THIRTY THOUSAND (P30,000.00) IN FAVOR OF PLAINTIFF-APPELLEE. On March 7, 2005, the RTC-Branch 14 rendered a Decision13 with the following disposition: WHEREFORE, all premises considered, the Court finds and so holds preponderance of evidence on the part of the defendant-appellant. Accordingly, the Decision appealed from is hereby REVERSED, and the complaint for Unlawful Detainer is dismissed. Finally, there is on record a defendant-appellants Motion for Reconsideration as regards the amount of the supersedeas bond. By the dismissal of the case, the resolution thereof is thereby rendered moot and academic. SO ORDERED.14 In reversing the ruling of the MeTC, the RTC found no proof on record that petitioner actually received the notice to vacate, thereby making the Complaint fatally defective. The RTC likewise opined that the resolution of the case hinges on the existence of implied new lease, a question which is incapable of pecuniary estimation and, therefore, beyond the MeTCs jurisdiction. Proceedings before the Court of Appeals Respondent filed with the CA a Petition for Review15 under Rule 42 of the Rules of Court assailing the RTC Decision. On November 23, 2006, the CA promulgated the now assailed Decision16 granting the petition. Its fallo reads:

WHEREFORE, the instant petition is hereby GRANTED. The Decision dated 7 March 2005 rendered by the Regional Trial Court (RTC) of Manila, Branch 14 is SET ASIDE and the Decision dated 21 September 2004 of the Metropolitan Trial Court (MeTC) of Manila, Branch 15 is REINSTATED. SO ORDERED.17 Issues Petitioner interposed the present recourse imputing upon the CA the following errors: A. x x x THE COURT OF APPEALS COMMITTED GRAVE ERROR WHEN IT RULED NOT TO DISMISS THE PETITION INTERPOSED BY RESPONDENT AND INSTEAD PROCEEDED TO REVERSE THE DECISION DATED MARCH 7, 2005 OF THE REGIONAL TRIAL COURT, BRANCH 14 DESPITE RESPONDENT (THEN PETITIONER) HAVING FAILED TO COMPLY WITH THE PROCEDURAL REQUIREMENTS UNDER RULE 42 OF THE 1997 RULES OF CIVIL PROCEDURE.18 B. THE COURT OF APPEALS ERRED WHEN IT FOUND ERRORS COMMITTED BY THE RTC IN REVERSING THE DECISION OF THE MTC.19 Our Ruling The petition lacks merit. The allegations in respondents petition are supported by material portions of the record. Petitioner contends that the Petition for Review20 filed by the respondent with the CA is procedurally infirmed and that the appellate court should have outrightly dismissed the same. Specifically, petitioner points out that while respondent attached to the petition the parties respective position papers, he failed to attach to said position papers the annexes thereto. This, petitioner insists, warrants the dismissal of respondents petition per Section 2, Rule 42 of the Rules of Court,21 in relation to Section 322 of the same Rule. We do not agree. Section 2 of Rule 42 does not require that all the pleadings and documents filed before the lower courts must be attached as annexes to the petition. Aside from clearly legible duplicate originals or true copies of the judgments or final orders of both lower courts, it merely requires that the petition be accompanied by copies of pleadings and other material portions of the record as would support the allegations of the petition. As to what these pleadings and material portions of the record are, the Rules grants the petitioner sufficient discretion to determine the same. This discretion is of course subject to CAs evaluation whether the supporting documents are sufficient to make out a prima facie case.23 Thus, Section 3 empowers the CA to dismiss the petition where the allegations contained therein are utterly bereft of evidentiary foundation. Since in this case the CA gave due course to respondents Petition for Review and proceeded to decide it on the merits, it can be fairly assumed that the appellate court is satisfied that respondent has sufficiently complied with Section 2 of Rule 42. Besides, our own examination of the CA rollo reveals that the annexes to the position papers can be found somewhere else in the petition. The annexes to the parties respective position papers are the same annexes attached to the Complaint and the Answer. In fact, Annexes "A" to "H" of the Complaint

respectively pertain to the same documents marked as Annexes "A" to "H" of respondents Position Paper. And while respondents Position Paper as attached to the petition does not contain any annexes, said annexes are nonetheless appended to the Complaint which is also attached to the petition. The same is true with Annexes "1" to "6" of petitioners Position Paper. Annexes "1", "2", and "3" are attached to the Petition for Review as Annexes "3", "4", and "5", respectively, of the Answer. Annex "4" of petitioners Position Paper is the Contract of Lease marked as Annex "C" of the Complaint, while Annexes "5" and "6" are marked and attached as Annexes "1" and "2", respectively, of the Answer. To our mind, these are more than substantial compliance with the requirements of the rules. Indeed, if we are to apply the rules of procedure in a very rigid and technical sense as what the petitioner suggests in this case, the ends of justice would be defeated. In Lanaria v. Planta,24 we emphasized that courts should not be so strict about procedural lapses that do not really impair the proper administration of justice, for rules of procedure are intended to promote, and not to defeat, substantial justice.25 Allegations of implied new lease or tacita reconduccion cannot oust the MeTC of jurisdiction over unlawful detainer cases. Petitioner also contends that the CA grievously erred in reversing the Decision of the RTC. He maintains that the RTC correctly held that the key issue to be resolved in this case is the existence of an implied new lease, a matter which is incapable of pecuniary estimation and, therefore, beyond the MeTCs jurisdiction. The argument is bereft of merit. The allegation of existence of implied new lease or tacita reconduccion will not divest the MeTC of jurisdiction over the ejectment case. It is an elementary rule that the jurisdiction of the court in ejectment cases is determined by the allegations pleaded in the complaint26 and cannot be made to depend upon the defenses set up in the answer or pleadings filed by the defendant.27 This principle holds even if the facts proved during trial do not support the cause of action alleged in the complaint.28 In connection with this, it is well to note that in unlawful detainer cases the elements to be proved and resolved are the facts of lease and expiration or violation of its terms.29 Here, no interpretative exercise is needed to conclude that respondent has complied with such requirement. In respondents Complaint, he specifically alleged that (1) the former owner, Mr. Chua, and petitioner entered into a contract of lease; (2) subsequently, respondent purchased the leased premises from Mr. Chua and became the owner thereof; (3) thereafter, the lease contract between Mr. Chua and petitioner expired; and (4) petitioner refused to vacate the premises despite the expiration and non-renewal of the lease. Besides, we do not agree with the RTC that the MeTC does not have jurisdiction to resolve the issue of existence of implied new lease in the unlawful detainer case. Tacita reconduccion refers to the right of the lessee to continue enjoying the material or de facto possession of the thing leased within a period of time fixed by law. During its existence, the lessee can prevent the lessor from evicting him from the disputed premises. On the other hand, it is too well-settled to require a citation that the question to be resolved in unlawful detainer cases is, who is entitled to de facto possession. Therefore, since tacita reconduccion is determinative of who between the parties is entitled to de facto possession, the MeTC has jurisdiction to resolve and pass upon the issue of implied new lease in unlawful detainer case. In Mid-Pasig Land Development Corporation v. Court of Appeals,30 we ruled that the MeTC is clothed

with exclusive original jurisdiction over an unlawful detainer case even if the same would entail compelling the plaintiff therein to recognize an implied lease agreement. Respondent did not acquiesce to petitioners continued possession of subject premises. Petitioner likewise claims that the RTC correctly held that there was no sufficient evidence on record that he received the alleged notice to vacate. While he admits that a notice to vacate is no longer necessary when the ground for unlawful detainer is the expiration of the lease, proof that he actually received said notice is still important in this case in view of his allegation of implied new lease. Citing Article 1670 of the Civil Code,31petitioner contends that if at the expiration of the contract of lease the lessee continued to enjoy the leased property for 15 days with the acquiescence of the lessor, there is an implied new lease. In this case, the determination of whether or not his continued stay in the leased premises is with the acquiescence of the lessor hinges on whether or not he received the notice to vacate. And, as correctly found by the RTC, he did not receive any notice to vacate. We are not swayed. Under Article 1670, an implied new lease will set in if it is shown that: (a) the term of the original contract of lease has expired; (b) the lessor has not given the lessee a notice to vacate; and (c) the lessee continued enjoying the thing leased for 15 days with the acquiescence of the lessor. This acquiescence may be inferred from the failure of the lessor to serve notice to vacate upon the lessee.32 In the instant case, however, the MeTC and the CA correctly found that there was a valid demand to vacate. Thus: Prior to the sale of the property by previous owner Joseph Chua to herein plaintiff, defendant was formally notified by the previous owner in a letter dated September 1, 2003 (Annex "D" of Complaint, Records, p. 12) of his intention to sell the property but herein defendant failed to exercise his preemptive right to purchase the property. Thus, the subject premises was sold to plaintiff who became the registered owner thereof as evidenced by TCT No. 261682 (Annex "A," Complaint, Records, p. 7). Plaintiff, as new owner/vendee, informed defendant through a letter dated November 3, 2003 (Annex "E," Complaint, Records, p. 13), even prior to the expiration of the contract that he will be needing the premises thus the contract will not be renewed or no contract will be executed, and directed defendant to vacate the premises by January 1, 2004. The said notice was sent by registered mail and by personal service. The notice sent by registered mail was returned to sender for failure of the defendant to claim the same at the post office. The unclaimed letter is attached to the plaintiffs position paper as Annex "F" (Records, p. 93). Despite notice given to him, defendant failed to vacate and a formal demand letter dated January 13, 2004 was served to him personally on January 21, 2004 which he refused to acknowledge that he received the same. A copy of that same letter was sent by registered mail but defendant refused to claim the same for which it was returned to sender. The unclaimed letter which was returned to sender is attached to the plaintiffs position paper as Annex "G-1" (Records, p. 96) and the certification from the post office attesting to the fact that defendant failed to claim the same is attached to the plaintiffs position paper as Annex "G" (Records, p. 95). The demand letter dated January 13, 2004 pertains to the premises presently occupied by defendant. The Contract of Lease (Annex "C," of Complaint, Records, pp. 10-11) which expired on December 31, 2003 speaks of only one (1) unit which is the subject matter of this case. Defendant failed to show that the portion being occupied by him which is the subject matter of this case is covered by another lease contract.

The Court therefore finds that there was a valid demand to vacate.33 This finding of the MeTC, which was affirmed by the CA, is a factual matter that is not ordinarily reviewable in a petition for review on certiorari filed under Rule 45 of the Rules of Court. It is settled that in a petition for review on certiorari, only questions of law may be raised by the parties and passed upon by this court.1awphi1 Besides, even if we do review the case, there is no cogent reason to disturb the finding of said courts. Under the rules, if the addressee refuses to accept delivery, service by registered mail is deemed complete if the addressee fails to claim the mail from the postal office after five days from the date of first notice of the postmaster.34 Further, the absence of personal service of notice to vacate in this case could only be attributed to petitioners unexplainable refusal to receive the same. In Co Keng Kian v. Intermediate Appellate Court,35 we held that "[t]he Court cannot countenance an unfair situation where the plaintiff in an eviction case suffers further injustice by the unwarranted delay resulting from the obstinate refusal of the defendant to acknowledge the existence of a valid demand." The formal demands to vacate sent to petitioner, coupled with the filing of an ejectment suit, are categorical acts on the part of respondent showing that he is not amenable to another renewal of the lease contract. Therefore, petitioners contention that his stay in the subject premises is with the acquiescence of the respondent, has no leg to stand on. Petitioners alleged preferential right to buy subject premises has no basis. In view of the above disquisition, petitioners claim that he was deprived of his preemptive rights because he was not notified of the intended sale, likewise crumbles. Besides, the right of first refusal, also referred to as the preferential right to buy, is available to lessees only if there is a stipulation thereto in the contract of lease or where there is a law granting such right to them (i.e., Presidential Decree No. 1517 (1978),36 which vests upon urban poor dwellers37 who merely lease the house where they have been residing for at least ten years, preferential right to buy the property located within an area proclaimed as an urban land reform zone). Unlike co-owners and adjacent lot owners,38 there is no provision in the Civil Code which grants to lessees preemptive rights. Nonetheless, the parties to a contract of lease may provide in their contract that the lessee has the right of first refusal. In this case, there is nothing in the Contract of Lease which grants petitioner preferential right to buy the subject premises. We are likewise unaware of any applicable law which vests upon him priority right to buy the commercial building subject matter of this case. In fact, aside from the sweeping statement that his preferential right to buy was violated, petitioner failed to cite in his Petition,39 Reply,40 or Memorandum41 any specific provision of a law granting him such right. In other words, petitioner failed to lay the basis for his claim that he enjoys a preferential right to buy. And even assuming that he has, the same will not prevent the ejectment case filed by the respondent from taking its due course. A contract of sale entered into in violation of preemptive right is merely rescissible and the remedy of the aggrieved party whose right was violated is to file an appropriate action to rescind the sale and compel the owner to execute the necessary deed of sale in his favor. In Wilmon Auto Supply Corp. v. Court of Appeals,42 we categorically held that an action for unlawful detainer cannot be abated or suspended by an action filed by the defendant-lesseee to judicially enforce his right of preemption.

WHEREFORE, the petition is DENIED.

G.R. No. 93625 November 8, 1993 VICENTE J. SANTI, petitioner, vs. HON. COURT OF APPEALS, HEIRS OF AUGUSTO A. REYES, JR., represented by ALEXANDER REYES,respondents. Manolo L. Lazaro for petitioner. Mario R. Gomez for private respondents.

NOCON, J.: The sole issue of the instant case is the interpretation specifically of paragraph 3 of the Contract of Lease 1executed between Esperanza Jose, predecessor-in-interest of herein petitioner and Augusto Reyes, Jr. The undisputed facts of the case as summarized by the trial court are as follows: Esperanza Jose was in her lifetime the registered owner and in absolute possession of a parcel of land known as Lot 3, Block 89, situated in Cavite City, more particularly described in TCT. No. 5508 (RT-3159) with an area of 1,472 square meters; that sometime on July 12, 1957 she leased a portion of the property unto spouses Eugenio Vitan and Beatriz Francisco for a period of 20 years "automatically extended" for another 20 years but with a rental of P220.00 per month as per Lease Contract ratified before Notary Public Abraham F. Aguilar (Exhibit "8") and on which the lessees constructed a cinema house; that sometime in 1962, the lessees sold all their rights, interest and participation over the cinema house together with the leasehold rights on the lessor's property unto Augusto A. Reyes, Jr. and a new contract of lease was entered between the new owner and Esperanza Jose (Exhibit "A") for a period of 20 years from and after April 1, 1962 with a monthly rental of P180.00 payable in advance, said period of lease being "extendable" for another period of 20 years with a monthly rental increased to P220.00 also payable in advance on or about the first day of each month (Exhibit "2-B"). In the interim, Esperanza Jose sold all her rights and participation over the parcel of land to Vicente J. Santi and TCT No. T-3968 of the Land Records of Cavite City was issued in his favor, on February 23, 1982 the lease having expired, plaintiff wrote Alexander Reyes as representative of Augusto Reyes, Jr., who had died, informing

him of the termination of the lease on March 31, 1982 and demanding peaceful turnover of possession, defendant refused on the ground that after consulting his lawyer, Atty. Gregorio R. Familiar the latter informed him that the lease was automatically extended for another 20 years at the rate of P220.00 a month and which amount he tendered unto plaintiff who refused and by virtue thereof, religiously deposited said amounts with the Clerk of Court of the Municipal Trial Court of Cavite City (Exhibits "5" and "6"). In view of defendant's refusal to vacate plaintiff filed a routine complaint against Alexander Reyes with the office of Barangay Captain of Barangay 34, "Lapu-lapu" of the City of Cavite; and no settlement having been reached the Barangay Captain issued a certification to file action (Exh. "B"). During the pre-trial, the parties agreed that the only question to be resolved in this case is the interpretation of Par. 3 of the Contract of Lease, Exhibit "A", of the plaintiff and Exhibit "2" for defendant which reads as follows: That this lease shall be for a period of twenty (20) years from and after the date of the execution of this document with a monthly rental of ONE HUNDRED EIGHTY PESOS (P180.00) payable in advance, said period of lease being extendable for another period of twenty (20) years with a monthly rental of TWO HUNDRED TWENTY PESOS (P220.00) also payable in advance on or before the 1st day of each month; (pp. 73-75, orig. rec.), Emphasis supplied. The trial court rendered judgment for the petitioner, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, the Court finds for plaintiff and orders defendant Alexander Reyes as representative of the heirs of Augusto Reyes, Jr., to turn over the possession of the property, Lot 3, Block 89 on which the cine house is erected unto plaintiff, to pay monthly rental of P1,000.00 commencing April 1, 1982 up to and until they have vacated and turned over the possession of the premises unto plaintiff, to pay the sum of P5,000.00 as attorney's fees, and to pay the costs. SO ORDERED. 2 It is the contention of herein petitioner that to extend the lease contract for another 20 years requires a subsequent agreement between the parties as the phrase "being extendable" meant "capable of being extended." 3 On the other hand, private respondents argue that the terms of the lease contract are clear and that the same should be automatically extended upon the expiration of the first 20 years. The court a quo, however, gave merit to the contention of herein private respondents and said: To enter into new negotiations to extend the contract would, therefore, be superfluous and unnecessary, an idle ceremony, for the lease contract already contains all that is necessary for the extension thereof. xxx xxx xxx

The suggestion to enter into new negotiations run counter to the lease contract for, as already said, everything necessary for its renewal or extension has been agreed upon. All that was left to abide by the lease contract. . . . 4 We disagree. Inasmuch as both parties to the lease contract have already died, a resort to the terms and conditions of the lease contract is inevitable in order to ascertain the true intent of the parties. In a wealth of cases and as provided for in Articles 1370 and 1372 of the Civil Code, 5 we have ruled that when terms and stipulations embodied in the contract are clear and leave no room for doubt, such should be read in its literal sense and that there is absolutely no reason to construe the same in another meaning. 6 Thus, the lease contract executed between Esperanza Jose and spouses Eugenio Vitan and Beatriz Francisco on July 12, 1957, 7 being clear and unambiguous, providing fro an automatic extension of twenty (20) years from the expiration of the first twenty (20) years, there is no reason why said contract should not be interpreted in the way the contracting parties meant it to be, that is the automatic extension of the lease for another twenty (20) years. Thus, paragraph 3 of the contract reads: 3. That the period of TWENTY YEARS (20) herein above provided shall be automatically extended for another TWENTY YEARS (20) but with the rental of TWO HUNDRED & TWENTY PESOS (220.00) per month also payable in advance on or before the 1st day of each corresponding month, at the residence of the Party of the First part. 8 (Emphasis supplied). The same could not be said in the case at bar. The phase "automatically extended" did not appear and was not used in the lease contract subsequently entered into by Esperanza Jose and Augusto Reyes, Jr. for the simple reason that the lessor does not want to be bound by the stipulation of automatic extension as provided in the previous lease contract. To our mind, the stipulation "said period of lease being extendable for another period of twenty (20) years . . ." is clear that the lessor's intention is not to automatically extend the lease contract but to give her time to ponder and think whether to extend the lease. If she decides to do so, then a new contract shall be entered into between the lessor and lessee for a term of another twenty years and at a monthly rental of P220.00. This must be so, for twenty (20) years is rather a long period of time and the lessor may have other plans for the property. If the intention of the parties were to provide for an automatic extension of the lease contract, then they could have easily provided for a straight forty years contract instead of twenty. We find the trial court's decision more in accord with the true intention of the parties except that portion wherein private respondents were ordered to pay a monthly rental of P1,000.00 starting from April 1, 982 up to and until they shall have vacated and turned over the possession of the premises unto herein petitioner. 9 This is in error. The law in point is Article 1670 of the Civil Code, which reads:

If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived. Article 1687 provides as follows: 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. The law provides that if after the end of the lease contract, the parties continue to enjoy the thing leased, an implied lease is created for the period mentioned in Article 1687, hence herein private respondents may continue to occupy the leased premises provided such is with the permission and consent of herein petitioner-lessor. Since the lease contract provided for a monthly rental of P220 to be paid by the lessee upon the expiration of the first twenty years, the latter shall be bound by such amount which shall be paid by herein private respondents to petitioner-lessor. ACCORDINGLY, herein private respondent is hereby ordered to turn over the possession of the disputed property and to pay a monthly rental of P220 starting from April 1, 1982 up to and until they shall have vacated and turned over the possession of the premises to herein petitioner, and to pay the sum of P5,000 as attorney's fees. WHEREFORE, the petition is hereby GRANTED, and the appealed decision REVERSED and SET ASIDE. The decision of the trial court is hereby REINSTATED and MODIFIED as provided for in the preceding paragraph. With costs. SO ORDERED. Narvasa, C.J., Padilla, Regalado and Nocon, JJ.

G.R. No. 92540 December 11, 1992 ANIANO vs. TORRES and JOSEFINA TORRES, petitioners,

THE HON. COURT OF APPEALS, HON. REGIONAL TRIAL COURT OF NEGROS ORIENTAL, BRANCH 34, and ADELA B. FLORES, respondents.

CRUZ, J.: The petitioners failed in the Municipal Circuit Court of Pamplona, Negros Oriental, the Regional Trial Court of Dumaguete City, and the Court of Appeals. They are now before this Court for a fourth opinion. The question before us is whether or not the original contracts of lease entered into between the petitioners and the private respondent have been validly renewed. These contracts related to ten parcels of land belonging to Adela B. Flores, the herein private respondent, that she leased to the spouses Aniano and Josefina Torres, for a specified term of four agricultural years commencing from 1985 and at stipulated rentals payable in piculs of sugar. It is not disputed that before the expiration of these contracts, the parties agreed on their renewal under the original terms, subject to the condition that the lessees would deliver to Flores the amount of P50,000.00 not later than February 15, 1989. Flores said she would need the money for her projected trip abroad. Flores claims that the petitioner failed to comply with this condition and that consequently she informed them on February 17, 1989, 1 that she was taking over her property upon the expiration of the contracts. She reiterated this notice one month later and advised them not to undertake any new cultivation on the lands. 2 When her subsequent demands for the surrender of her property were disregarded, she sued the petitioners for illegal detainer. In their answer to the complaint, the petitioners submitted that the contracts had been validly renewed because they had complied with the above-mentioned condition. As affirmative defense, they contended that the lease had been continued under the rule of tacita reconduccion and that the complainant was estopped from denying that she had granted them an option to renew the contracts. After trial under the Rule on Summary Procedure, Judge Teopisto L. Calumpang held that the contracts had not been validly renewed because the Torreses had failed to deliver the amount of P50,000.00 in cash to Flores as promised. The total amount raised by the petitioners by February 15, 1989, was only P11,415.89. 3 This finding was affirmed on appeal to the Regional Trial Court of Dumaguete City by Judge Rosendo B. Bandal, Jr., who added that such non-compliance had been established by the admission of the petitioners themselves. 4 In their appeal to the respondent court, the petitioners argued that (a) what was subject to the condition was the execution of the renewed written contract of lease; (b) granting that the condition was to be applied to the principal contract, this was complied with as evidenced by the subsequent acts of plaintiff in withdrawing P50,000.00 worth of piculs of sugar; and (c) the appellee was placed in estoppel and guilty of bad faith because of the previously referred withdrawal.

Again they failed. On January 25, 1990, in a perceptive decision penned by Justice Celso L. Magsino, the Court of Appeals sustained the findings of the lower courts that the contracts had not been validly renewed. 5 The petitioners' motion for reconsideration was denied on February 19, 1990, 6 and they have now come to this Court as a last resort. The present petition faults the Court of Appeals for not holding that the contracts of lease had been impliedly renewed, that the lessor was estopped from denying this, and that the contracts had been novated. The petitioners also complain that the supplement to their motion for reconsideration had not been taken into account. The petitioners must fail again. We begin by reiterating the familiar rule that the findings of fact of the lower courts are binding on this Court unless they come within the specified exceptions, which are also well-known. 7 None of such exceptions has been established in the case at bar. We therefore accept that there was an oral agreement between the parties to extend the original contracts of lease provided that the petitioners could deliver to the private respondent the sum of P50,000.00 in cash not later than February 15, 1989. This was a suspensive condition that was not met. It is clear from the documentary evidence submitted by both parties that the two checks paid to Flores by the spouses Torres were in the separate amounts of only P1,686.15 and P9,729.74. They were undisputably far short of the required payment of the P50,000.00 rentals on the land by the petitioners as a condition for the renewal of the lease. Hence, Flores as lessor was not obliged to extend the contracts. As correctly held by the Court of Appeals: The evidence on record shows that when petitioner Josefina Torres came to see private respondent sometime in December, 1988, she requested that they renew their contract of lease which was to expire in crop year 1988-1989. Private respondent told her that she may consider petitioner's request if she could put up the amount of P50,000.00 cash to be applied to the rental of the leased sugar lands on or before February 15, 1989, which the respondent would need for her trip abroad, otherwise, they were going to abide by the subsisting contract of lease. When February 15, 1989 came, and petitioner Josefina Torres was not able to comply with the aforesaid condition, on February 17, 1989, respondent wrote petitioner Josefina that she would take over the cultivation of the subject lands. On February 20, 1989, private respondent caused her lawyer to write the petitioners not to make any further cultivation of the subject lands. Under the foregoing factual backdrop, the condition set up by private respondent that petitioner Josefina Torres produce and give her cash in the amount of P50,000.00 on or before February 15, 1989 is a suspensive conditon for said respondent to consider the renewal, not that actual renewal yet of the contract of lease. Definitely, what transpired between private respondent and petitioners Josefina Torres, as found by the lower courts and which We find to be correct, is not an option given to the petitioners to renew the lease agreement. Given the fact that private respondent served notice to the petitioners that she was terminating the contract of lease as per their agreement, after the harvest of the canes from each parcel of land during the crop year 1988-1989, there can arise no

implied renewal of lease (tacita reconduccion), but that the continued possession and cultivation of the subject lands therefore by the petitioners constitutes illegal detainer. The petitioner's argument that they complied with the condition because the private respondent had withdrawn from the quedans with a money value of more than P50,000.00 is not acceptable. The value of the quedanswithdrawn as of February 15, 1989, amounted to only P11,415.89. Her acceptance of the two check vouchers representing the quedans might indeed have estopped her from arguing that the payments should have been in cash, especially so since she had encashed the checks without objection. The obstinate fact, however, is that the cash value of the checks was undeniably below the stipulated P50,000.00 that was to be paid before the deadline. The invocation of tacita reconduccion is futile. The facts of this case as found by the lower courts clearly show that there was no implied renewal but instead an express termination of the contracts of lease. This is evident from the letters of Flores to the petitioners advising them on February 17, 1989, that she would take over her property upon the end of agricultural year 1989 and on March 8, 1989, that they should not undertake any new cultivation of the leased lands and demanding again that they vacate the same. This demand had earlier been made by Flores's counsel on February 20, 1989. 8 The Civil Code provides: Art. 1670. If at the end of the contract, the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract but for the time established in Art. 1682 and 1687. The other terms of the original contract shall be revived. There was no acquiescence on the part of the lessor to the petitioners' continued stay in her property. On the contrary, she expressly informed them that she was not renewing the lease and in fact later demanded that they vacate her property. The private respondent's acceptance of the rentals beyond the original term did not signify that she had agreed to the implied renewal of the lease. The simple reason is that the petitioners remained in possession of the subject lands and, regardless of the outcome of their case, had to pay rentals to the private respondent for the use of her property. The issue of novation does not deserve consideration in this petition as it was raised for the first time only when the case was already in the Court of Appeals. Finally, we must also reject the complaint that the petitioners were denied due process because the respondent court did not take into account the supplement to their motion for reconsideration. The presumption is that such supplement was considered but found to be undeserving of further comment. Courts are not required to expressly dispose of every single point or argument raised by litigants, even if off-tangent, repetitive of absurb. Courts must distinguish between the substantial and the irrelevant or trivial as a practical measure for the proper harnessing of their time. WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so ordered. Padilla, Grio-Aquino, and Bellosillo, JJ., concur.

G.R. No. L-48336

September 21, 1942 PHILIPPINES, plaintiff-appellee,

THE PEOPLE OF THE vs. FELIPE MAPOY and R. M. MAIPID, defendant-appellants. Romualdo Constantino for Ross, Selph, Carrascoso & Janda as Assistant Solicitor-General Enriquez and Solicitor Alikpala for appellee.

private

appellants. prosecutors.

1. CRIMINAL LAW AND PROCEDURE; VIOLATION OF BULK SALES LAW (Act No. 3952); WHEN PAYMENT OF INDEMNITY TO OFFENDED PARTY DOES NOT LIE. Defendants were charged with violation of the Bulk Sales Law in that they mortgaged all of their stock of goods, etc., without any notice to Daido Boeki Kaisha, Ltd., one of the offended parties, to which they were indebted in the sum of P2,568.85. They pleaded guilty and its sentenced by the Court of First Instance of Manila to pay a fine of P100, and the costs, and to indemnify Daido Boeki Kaisha, Ltd., jointly and severally in the sum of P2,568.85, with subsidiary imprisonment in case of insolvency. Held: That it was error for the trial court to consider said indebtedness as a liability arising from the crime charged, and to order defendants to indemnify Daido Boeki Kaisha, Ltd., in the sum of P2,568.85, with subsidiary imprisonment in case of insolvency. 2. ID; ID; ID; Inasmuch as under section 4 of the Bulk Sales Law, the mortgaged in question was fraudulent and void, and there being no proof that the mortgaged goods have disappeared, the same are still subject to attachment for the satisfaction of creditors' lawful claims against the defendants. Daido Boeki Kaisha, Ltd., may still bring a separate civil action against defendants herein for the collection of any indebtedness that may be due from defendants, and if the latter will not pay the judgment in such civil case, the goods involved in the instant case may be seized and sold. Therefore, the obligations of defendants to pay Daido Boeki Kaisha , Ltd., the sum of P2,568.85, which was already existing when the mortgage was signed, was not the result of the violation of the Bulk Sales Law, nor was it affected by said violation.

G.R. No. 18520 INVOLUNTARY vs.

September 26, 1922 INSOLVENCY OF PAUL STROCHECKER, appellee,

ILDEFONSO RAMIREZ, creditor WILLIAM EDMONDS, assignee.

and

appellant.

Lim & Lim for Ross & Lawrence and Antonio T. Carrascoso, jr., for the Fidelity & Surety Co. ROMUALDEZ, J.:

appellant.

The question at issue in this appeal is, which of the two mortgages here in question must be given preference? Is it the one in favor of the Fidelity & Surety Co., or that in favor of Ildefonso Ramirez. The first was declared by the trial court to be entitled to preference. In the lower court there were three mortgagees each of whom claimed preference. They were the two above mentioned and Concepcion Ayala. The latter's claim was rejected by the trial court, and from that ruling she did not appeal. There is no question as to the priority in time of the mortgage in favor of the Fidelity & Surety Co. which was executed on March 10, 1919, and registered in due time in the registry of property, that in favor of the appellant being dated September 22, 1919, and registered also in the registry. The appellant claims preference on these grounds: (a) That the first mortgage above-mentioned is not valid because the property which is the subject-matter thereof is not capable of being mortgaged, and the description of said property is not sufficient; and (b) that the amount due the appellant is a purchase price, citing article 1922 of the Civil Code in support thereof, and that his mortgage is but a modification of the security given by the debtor on February 15, 1919, that is, prior to the mortgage executed in favor of the Fidelity & Surety Co. As to the first ground, the thing that was mortgaged to this corporation is described in the document as follows: . . . his half interest in the drug business known as Antigua Botica Ramirez (owned by Srta. Dolores del Rosario and the mortgagor herein referred to as the partnership), located at Calle Real Nos. 123 and 125, District of Intramuros, Manila, Philippine Islands. With regard to the nature of the property thus mortgaged, which is one-half interest in the business above described, such interest is a personal property capable of appropriation and not included in the enumeration of real properties in article 335 of the Civil Code, and may be the subject of mortgage. All personal property may be mortgaged. (Sec. 2, Act No. 1508.) The description contained in the document is sufficient. The law (sec. 7, Act No. 1508) requires only a description of the following nature: The description of the mortgaged property shall be such as to enable the parties to the mortgage, or any other person, after reasonable inquiry and investigation, to identify the same. Turning to the second error assigned, numbers 1, 2, and 3 of article 1922 of the Civil Code invoked by the appellant are not applicable. Neither he, as debtor, nor the debtor himself, is in possession of the

property mortgaged, which is, and since the registration of the mortgage has been, legally in possession of the Fidelity & Surety Co. (Sec. 4, Act No. 1508; Meyers vs. Thein, 15 Phil., 303.) In no way can the mortgage executed in favor of the appellant on September 22, 1919, be given effect as of February 15, 1919, the date of the sale of the drug store in question. On the 15th of February of that year, there was a stipulation about a persons security, but not a mortgage upon any property, and much less upon the property in question. Moreover, the appellant cannot deny the preferential character of the mortgage in favor of the Fidelity & Surety Co. because in the very document executed in his favor it was stated that his mortgage was a second mortgage, subordinate to the one made in favor of the Fidelity & Surety Co. The judgment appealed from is affirmed with costs against the appellant. So ordered. Araullo, C.J., Street, Malcolm, Avancea, Villamor, Ostrand and Johns, JJ., concur.