Arevalo Gomez Corporation v. Lao Hian Liong
REITERATIONFacts
1. The Antecedents: On December 1, 1964, Arevalo Gomez Corporation (petitioner) and Andres Lao Hian Liong (respondent) entered into a fifteen-year lease agreement for a property in Baguio City. The lease stipulated a monthly rental of P2,450.00 and required the respondent to construct a three-story building on the premises, contributing P45,000.00 towards its cost, with the total construction cost not to be less than P150,000.00. 2. Procedural History: Following the expiration of the lease on August 31, 1979, and the respondent's continued occupancy, the petitioner sent a notice to vacate on October 2, 1979. When the respondent refused to vacate, the petitioner filed an ejectment case. The City Court ruled in favor of the respondent, finding an implied new lease under Article 1670 of the Civil Code and extending the lease for five years with increased rentals. Both parties appealed. The Regional Trial Court affirmed the implied renewal but modified the judgment by extending the lease for ten years and further increasing the monthly rentals. The petitioner's motion for reconsideration was denied. 3. The Petition: The petitioner filed a petition for certiorari and appeal under Rules 65 and 45 of the Rules of Court, assailing the decision of the Regional Trial Court. The petitioner argued that there was no implied renewal of the lease due to ongoing negotiations for increased rentals and the respondent's refusal to agree to the new terms. The petitioner also contested the extension of the lease period and the admission of parol evidence. The Supreme Court treated the petition as filed under Rule 45, allowing a review of factual findings when there is a misapprehension of facts, and ultimately held that the lease was not impliedly renewed.
Issue(s)
Whether an implied new lease under Article 1670 of the Civil Code was created, considering the parties' failure to agree on new rental terms, the lessor's demand for increased rentals, and the communications between the parties. Whether the notice to vacate, including prior communications regarding rental increases, was timely and effective in preventing the implied renewal of the lease. Whether the lower courts erred in extending the lease period and fixing the new rentals, and what constitutes a reasonable rental for the period of illegal possession.
Ruling
The petition is granted. The decision of the respondent judge is set aside. Respondent Andres Lao Hian Liong is ordered to vacate the leased premises immediately, pay petitioner monthly rentals in the amount of P30,000.00 plus legal interest from September 1, 1979, until the premises are surrendered, and pay attorney's fees of P30,000.00 and costs. Deposits made by the respondent shall be deducted from the total amount due. The decision is immediately executory.
Ratio Decidendi
On the issue of implied new lease: The Court held that an implied new lease under Article 1670 of the Civil Code requires the lessee's continued enjoyment of the premises for fifteen days with the lessor's acquiescence, and the absence of a prior notice to the contrary. In this case, the negotiations for a rental increase prior to the expiration of the lease, the petitioner's categorical declaration that the increased rental was non-negotiable, and the respondent's rejection of this demand, all indicate a lack of acquiescence by the lessor to a renewal under the old terms. The petitioner's refusal to accept the old rentals after the lease expired further negates any implication of renewal. The Court distinguished this situation from cases where no negotiations occur, emphasizing that active negotiations and disagreement on terms prevent the operation of Article 1670. The Court found that the petitioner's communications, including the demand for increased rentals, served as a conditional notice to vacate if the new rate was not accepted, thereby satisfying the requirement of Article 1670. On the timeliness and effectiveness of the notice to vacate: The Court found that the petitioner had communicated its intention to increase the rental weeks before the lease expired, and reiterated this demand in subsequent letters, even rejecting the respondent's counter-proposal. These communications, particularly the rejection of the old rental payments, constituted a conditional notice to vacate if the increased rental was not met. The formal notice to vacate on October 2, 1979, was merely a reiteration of the earlier implied demand. The Court clarified that while the formal notice was beyond the 15-day statutory period, the prior communications demanding a new rental rate and rejecting the old one effectively prevented the setting in of an implied new lease. The Court cited Roxas vs. Alcantara to support the principle that failure to agree on new stipulations results in an automatic notice to vacate upon expiration. On the extension of the lease period and fixing of rentals: Since the Court ruled that there was no implied renewal of the lease, the respondent's continued possession of the premises after August 31, 1979, was deemed illegal. Consequently, the lower courts' decisions extending the lease period and fixing new rentals were set aside. The Court, however, determined a reasonable monthly rental for the use and occupancy of the premises from September 1, 1979, until vacation, considering the difference between the parties' last proposals and the fair rental value per square meter. The Court fixed this amount at P30,000.00 per month, plus legal interest, as a compromise between the parties' positions.
Main Doctrine
An implied new lease under Article 1670 of the Civil Code is understood to have set in if, at the end of the contract, the lessee continues 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. However, negotiations for a rental increase prior to the expiration of the lease, coupled with the lessee's rejection of such increase and the lessor's refusal to accept the old rental, negate the lessor's acquiescence and prevent the setting in of an implied new lease.