Imperial Insurance, Inc. v. Simon
REITERATIONFacts
The Antecedents: Pelagio B. Simon (appellee) was the lessee of a ground floor premises used as a haberdashery shop, paying P1,800.00 monthly. Imperial Insurance, Inc. (appellant) purchased the building on September 13, 1961. On September 14, 1961, both the former owner and appellant informed appellee of the sale and the termination of existing monthly lease contracts, requesting him to vacate by October 14, 1961. Appellee failed to vacate. Appellant sent another letter on October 18, 1961, reiterating the demand to vacate and demanding payment of five months' rental arrears. Atty. Amelito Mutuc, on behalf of appellant, sent a formal demand on November 28, 1961, for P9,000.00 in arrears (June-October 1961) and to vacate within five days. Procedural History: Appellee replied on December 9, 1961, offering to continue the lease at P2,300.00 monthly after remodeling and requesting a one-year extension from the sale date. He also committed to pay the arrears within two weeks and future rentals as they fall due. On December 22, 1961, appellee paid P9,000.00 for arrears (June-October 1961), with an undertaking to pay rentals up to February 1962 at increased rates (P2,300.00 for Dec 1961-Feb 1962). He paid P1,800.00 for November 1961 rentals on January 12, 1962, with conditions for paying December 1961 and subsequent rentals. Appellee failed to pay the December 1961 rental. Appellant's counsel sent demand letters on January 29, 1962, and February 15, 1962, demanding payment and reminding him to vacate by end of February 1962. Appellee, on January 18, 1962, offered a new settlement plan for P2,300.00 rental with a one-year extension. Appellant filed an Unlawful Detainer case on February 27, 1962, seeking to vacate, payment of P4,600.00 arrears (Dec 1961-Jan 1962), P2,300.00 monthly rent from February 1962, and attorney's fees. The Municipal Court ordered appellee to vacate, pay P2,300.00 monthly from December 1961, P100.00 attorney's fees, and dismissed the counterclaim. Appellee appealed to the CFI of Manila. The CFI denied a motion to re-open the case. On November 6, 1962, the CFI ruled that Article 1687 could apply, granted appellee a two-year occupancy from finality of judgment at P1,800.00 monthly, and ordered appellant to reimburse P20,000.00 for improvements plus P1,000.00 attorney's fees. Appellant appealed directly to the Supreme Court. The Petition: Appellant alleged the trial court erred in applying Article 1687, granting a two-year occupancy, fixing the rental at P1,800.00, and ordering reimbursement for improvements and attorney's fees.
Issue(s)
Whether Article 1687 of the Civil Code can be applied motu proprio by the court when not raised as a defense by the lessee. Whether the lessee is entitled to a two-year extension of occupancy. Whether the monthly rental should be fixed at P1,800.00 or P2,300.00. Whether the lessee is entitled to reimbursement for alleged improvements made on the premises.
Ruling
The Supreme Court modified the decision of the Court of First Instance. The defendant-appellee Pelagio B. Simon is ordered to vacate the premises immediately upon finality of this decision; to pay appellant Imperial Insurance, Inc., the amount of P2,300.00 monthly starting from December, 1961, until he vacates the premises, with legal interest thereon; and to pay appellant the further sum of P1,500.00 as attorney's fees. Appellant is relieved from any liability in favor of appellee. Costs against defendant-appellee.
Ratio Decidendi
On Issue 1: Whether Article 1687 of the Civil Code can be applied motu proprio by the court when not raised as a defense by the lessee. The Supreme Court held that Article 1687 of the New Civil Code cannot benefit the appellee because he failed to interpose this provision as a defense in his Answer to the complaint. It is a fundamental rule that all available defenses not interposed are deemed waived. Therefore, the trial court should not have applied the provision motu proprio. The Court further stated that the article could not have contemplated an unwarranted extension of a lease period by virtue of its mandate, making the terms of the contract indefinite until judicial intervention. The facts clearly showed that both the former owner and the new owner formally informed the appellee of the termination of the lease, and the appellee himself had requested an extension and committed to a higher rental rate. On Issue 2: Whether the lessee is entitled to a two-year extension of occupancy. The Supreme Court found no legal or factual basis for the portion of the decision granting the appellee a two-year period to occupy the premises. The appellee himself had only asked for a one-year extension from the date of the property's sale. The lower court did not cite any legal provision to support such a holding. The Court emphasized that the appellee had already prolonged his stay beyond the one-year extension he requested, and if he did not agree to the increased rentals, he was free to leave. On Issue 3: Whether the monthly rental should be fixed at P1,800.00 or P2,300.00. The Supreme Court found the fixing of the monthly rental at P1,800.00 for the prospective two-year period arbitrary. The appellee himself, in his letters, expressed willingness to pay P2,300.00, and the receipts for payments made indicated that starting from December 1961, he was to pay P2,300.00. This demonstrated an acknowledgment that the premises were worth that much in rentals. Given the increased assessments on the property and the appellee's prolonged occupancy, the increase in rental was deemed justified. Therefore, the appellee should pay P2,300.00 per month until he vacates the premises. On Issue 4: Whether the lessee is entitled to reimbursement for alleged improvements made on the premises. The Supreme Court ruled that the lessee was not entitled to reimbursement for alleged improvements. Firstly, there was no evidence presented to show that improvements were made or to establish their value. The appellee's motion to reopen the case to present evidence for his counterclaim, which included the alleged improvements, was denied by the CFI. Secondly, even if evidence were presented, the lessee had not proven that the improvements were made in good faith, were useful, and suitable without altering the premises' form or substance, as required by law. The Court cited jurisprudence holding that a lessee making improvements knowing their occupation is temporary does so at their own risk and cannot recover their value.
Main Doctrine
The application of Article 1687 of the Civil Code, which allows courts to fix a longer term for a lease, is contingent upon the lessee interposing this provision as a defense in their Answer. Failure to do so constitutes a waiver of this defense, and the court cannot apply it motu proprio. Furthermore, a lessee cannot unilaterally extend the lease term, especially when formal notice of termination has been given and the lessee has acknowledged the termination by proposing new terms and conditions.