CIVIL CODE CASES

1. Gonzales v. Mateo, 74 Phil 573

a. FACTS: Vicente Mateo et al. (lessors) went into business as an unregistered
partnership under the name "Samahang Sabungang Malaya." They leased to
Gonzales their cockpit situated in Malolos, Bulacan, under a written contract for
the period of six years at the agreed yearly rental of P100 with several conditions.
Before using the cockpit, Gonzales made some improvements to the building to
improve its structural support. A cockfight was held in said cockpit with a large
attendance. The building broke down and collapsed during that event. Mateo et al
demanded of Gonzales that he either reconstruct the cockpit or pay damages. But
Gonzales refused to comply, alleging that under his contract he was not obligated
to make repairs, but only improvements, on the building and that its collapse was
due to hidden defects which the lessors had concealed from him.
b. ISSUE: Whether or not Gonzales should be held liable for the collapse of the
cockpit
c. HELD: It is evident that Gonzales accepted the cockpit in question from the
lessors in the condition in which it was found at the time under the express
agreement that all that was necessary to put it in use had to be done by the
petitioner at his own expense without any obligation on the part of the
respondents to reimburse him or pay for the improvements thus made upon the
expiration of the lease. While it is true that under the law (paragraph 2 article
1554 of the Civil Code) it is the duty of the lessor to make on the building leased
all repairs necessary in order to keep it in serviceable condition for the purpose for
which it was intended, the parties were at liberty to stipulate the contrary. The
collapse of the building in question on the occasion of the heavily attended
cockfight of September 12, 1937, was not due to any hidden defect but to the fact
that thru petitioner's negligence in making the repairs he failed to place the posts
on firm, solid, and sound foundation Under article 1563 of the Civil Code, "the
lessee is liable for any deterioration or loss suffered by the thing leased, unless he
proves that it took place without his fault."

2. Manlapat v. Salazar, 98 Phil 356

a. FACTS: A lease was entered into which would last until June 1, 1967. The
lessee, however, entered into a contract with Salazar wherein she would lease the
same property to Salazar until May 31, 1967 (a shorter period than the original
lease, by one day). Inasmuch as the contract was entered into without the consent
of the lessor, he alleged that the contract was void on the ground that the same
was an assignment, not a sublease.
b. ISSUE: Whether or not it is a contract of assignment or sublease
c. HELD: This is a sublease, and therefore it could be affected even without the
lessor’s consent there being no express prohibition on a sublease. The sublessor
has not stepped out of the original contract; she remains a party to it. All the
terms (given above) of the sublease clearly indicate that indeed a sublease, not an
assignment, has been agreed upon. Moreover, the underletting for a period less
 than the entire term in this case (indeed, the reservation of even so short a period
as the last day of the term) makes the transfer a sublease, and not an assignment.

3. Pamintuan v. CA, 42 SCRA 344

a. FACTS: A lease contract was executed in favor of petitioners Tan and Pamintuan
for two. It provided for an agreed monthly rental of P15.00 payable promptly at
the end of every month for each lot or P30.00 for the two. The lease was entered
into on October 10, 1951 to expire at the discretion of the lessee after twenty
years. There was another provision that failure on the part of the lessee to pay the
rental for six consecutive months would automatically annul the contract. The
complaint for rescission filed by private respondents as plaintiffs against
petitioners as defendants alleged that with respect to the first lot, Tan was in
arrears for the period of twelve months and, with respect to the second lot, for a
period of eight months. The Lower Court granted the petition to rescind the
contract. Appeal to the CA affirmed lower court’s decision. Hence, this appeal
b. ISSUE: Whether or not the petitioners had violated the provision in the contract
of lease as to the monthly rental being promptly paid at the end of every month as
claimed by plaintiffs
c. HELD: While claiming to have committed no such violations, the petitioners
nevertheless admitted that they in their pleadings nor at any time during the trial,
never claimed to have offered to pay the rental at the end of each month. On the
contrary, they impliedly admitted in their pleadings that no such monthly
payments were ever made. With their above admission that 'no such monthly
payments were ever made' by them, it is clear that they violated the aforequoted
provision of paragraph 2 of the contract of lease. Clearly, said violation of lessees'
obligation to pay the price of the lease according to the terms stipulated entitles
the respondents to rescind said contract of lease under Article 1659 of the Civil
Code providing that 'If the lessor or the lessee should not comply with the
obligations set forth in articles 1654 and 1657, the aggrieved party may ask for
the rescission of the, contract and indemnification for damages or only the latter,
allowing the contract to remain in force.

4. Heirs of Dimaculangan v. IAC, 170 SCRA 393 (1989)

a. FACTS: Dimaculangan and her children occupy by lease an apartment at a

monthly rental of P250.00. Respondent Uy sent Dimaculangan a letter informing
her that the property, which she has been occupying, has been sold to him and
should she desire to continue occupying the same, she should sign a contract of
lease for a period of two (2) years at a monthly rental of P1,500.00. Uy received
no reply to this demand. Thus, he wrote another letter, demanding payment of
P750.00 covering unpaid rentals. But still, there was no word from Dimaculangan
such that Uy was forced to file a complaint for ejectment.
b. ISSUE: Whether or not the trial court may alter the agreement of the parties by
shortening the period of the lease from an indefinite period within the purview of
Presidential Decree No. 20, the law in force at the time, and of the amendatory
Batas Pambansa Blg. 25, to a fixed two (2) years
 c. HELD: Yes. It is exempt from the application of P.D. No. 20, it must be one with
a definite period It has been established that petitioners have been occupying the
leased premises on a verbal contract since 1961 at a monthly rent of P250.00, and
that although no fixed period for the duration of the lease has been agreed upon
the original lessor and lessee, the rentals were paid monthly. The SC had already
ruled that leases are deemed on a "month-to-month basis", if rentals therefore are
paid monthly.

5. Fermin v. CA, 196 SCRA 723

a. FACTS: Spouses Fermin and spouses Alpas as lessors and lessees, respectively,
entered into a contract of lease. Before the expiration of the ten (10) year period,
defendants sent plaintiffs representative a document entitled 'Lease of Real
Property' already signed by them. It was never signed by plaintiffs up to this day.
AGRA & Co., Inc., as collection agent of the plaintiffs collected payment from
the defendants for the annual rental. Key Management Corporation in a letter
informed defendants that said company was appointed attorney-in-fact. In
another letter, they advised Mr. Alpas that they were unilaterally terminating the
lease effective 18 April 1987. Mr. Alpas responded that the lease was renewed.
However, Key Mgt. reiterated its demand for him to vacate.
b. ISSUE: Whether or not the spouses Alpas can be validly ejected from the
property
c. HELD: No, there was an implied renewal of the lease from year to year. From the
foregoing set of facts, it cannot be said that the lease agreement was effectively
renewed for another 10 years. The stipulation of the parties is clear in that such a
renewal is subject to the mutual agreement of the parties. While there is no
question that private respondents expressed their desire to renew the lease by
another 10 years at the rate of the rental stipulated in the lease agreement,
apparently petitioners would be willing to renew said lease. Obviously, there was
no meeting of the minds as to the rate of the rental. As there was no agreement
reached, then the term of the lease may not be considered to have been renewed
for another 10 years. However, since after the expiration of the lease agreement,
the private respondents continued to occupy the premises for more than 15 days
with the acquiescence of petitioners, then it is understood that there is an implied
new lease, not for the period of the original contract, but from year to year. Article
1670 of the Civil Code provides for this situation.

SPOUSES GUDA vs LEYNES AND SPOUSES PER ALTA GR 143675

JUNE 9,2003

F A CTS:
Spouses Peralta were the owners of a residential house which they leased On 08
May 1987 to the spouses Guda for a monthly rental of two thousand pesos. The
contract of lease stipulated a term of one year and that, thereafter, unless
terminated by notice to that effect at least thirty days before the expiration date,
the agreement would be deemed renewed on a month-to-month basis. Upon the
expiration of the agreement on 14 May 1988, petitioners continued to occupy the
premises and to pay rent. Close to three years later, or on 01 May 1991, the
Peraltas sold the property to Alan A. Leynes, a brother of Haydee Peralta.
Insisting on exercising their "option to buy" under the contract of lease and
contending that the sale to Leynes was void, spouses Guda refused to vacate the
premises. Leynes filed a civil case for ejectment before the MTC of Manila. The
trial court ruled in favor of Leynes. Aggrieved, the Guda spouses filed.

for the annulment of the sale to Leynes and for specific performance pursuant to
the option to buy provision of the contract of lease with the Peralta spouses. The
trial court ruled in favor of the spouses Guda, declaring the sale of the property to
Alan A. Leynes void and ordering the conveyance of the premises to the Spouses
Guda.

On appeal, the CA, reversed the decision of the trial court.

ISSUE:
WON the first option to buy the leased premises, were automatically revived thus
making
the sale of the property to Leynes, without giving them the opportunity to exercise
the option, void.
HELD:
NO. The SC agreed with the CA that: The contract of lease allowed the lessees to
continue with their occupancy of the leased premises on a month-to-month basis
after its termination on14 May 1988 if no notice of such termination were given
by the lessor at least thirty days before the expiry date. The renewal clause is valid
but the contract itself is not deemed renewed until after notice or positive act is
made to indicate its exercise by the parties. Meanwhile, the juridical relation
between the parties, constrained by the continued enjoyment of the leased
premises, is one of an
implied
lease based on the principle of tacita reconduccion. (Article 1670 of the Civil
Code). The terms of the original contract that are carried over to the implied new
lease cover only those
terms that are germane to the lessees’ enjoyment of the premises, such as the rent
and
terms of payment, a dictum that has been reiterated in
Dizon vs. Court of Appeals
.

Quite significantly, the option granted to petitioners would appear to have, in fact,
been abrogated when the 1987 contract of lease was ultimately superseded by an
agreement executed on 22 April 1991.
With the Contract of Lease dated May 8, 1987, having been validly terminated
and superseded by a new written agreement dated April 22, 1991, which also
reiterated a month-to-month lease in force between the parties, the trial court thus
erred in declaring that the Peraltas violated the provisions of the Contract of Lease
in selling the leased property to Leynes.

MANAS v. NICOLASORA et. al.GR No. 208845 Feb. 3, 2020Leonen, J.

NATURE OF THE ACTION: Complaint for Rescission of Contract of

Sale and Cancellation of the Certificate of Title and Enforcement of the
Right of First Refusal

Facts: On April 18, 2005, the Manas Spouses entered into a Lease Contract with
Rosalina Nicolasora over a property in Tacloban City that was owned by
Rosalina’s husband, Chy Tong Sy Yu (now deceased). It appears that the Lease
Contract lapsed in 2006, with no express renewal. However, the Manas spouses
continued using the premises and paying the rentals, without any objections from
Rosalina and her children.

In February 2008, Chy Tong Sy Yu sold several parcels of land, including the
subject property being leased. The sale was made “with the conformity” of
Rosalina, and their children. Titles to the property were subsequently transferred.

However, Manas spouses claimed that they were neither informed of the sale nor
offered to purchase the property. According to them, their right of first refusal
embodied in the Lease Contract was violated. Thus, the filing of a complaint
praying that the contract of sale be rescinded, the relevant title be canceled, and
their right of first refusal or option to buy be enforced.

Meanwhile, Rosalina and her children filed an Answer with Counterclaim. They
argued that the right of first refusal was “granted only during the original term” of
the contract of lease,” and that the Complaint was prematurely filed.

Manas spouses filed a Motion for Reconsideration, but it was denied. Trial Court
stated that the expiration of the subject Contract of Lease carries with it the
termination of the Plaintiffs’ Right of First Refusal.

In the appeal, Manas spouses again alleged that Roselle, the buyer of the subject
property, was a minor at the time of the sale; hence, the Deed of Absolute Sale
was void. They also faulted the trial court for ruling that their Complaint stated no
cause of action.

CA affirmed RTC’s rulings, Manas spouses filed a Motion for Reconsideration

which was denied by the CA. Thus, the Petition for Review on Certiorari arguing
 that the trial court erred in granting the Motionto Dismiss based on "respondent's
defenses and not on the ultimate facts alleged in the Complaint."

ISSUE: Whether or not the lease was impliedly renewed, and whether or not the
renewal includes the right of first refusal.

RULING: YES, the lease was impliedly renewed but does not include the right of
first refusal.

Based on the terms of the Lease Contract, renewal would be the option of the
lessee. However, petitioners did not appear to have expressly informed the lessor
of their intent to renew. Instead, after the original Lease Contract had expired,
they continued to pay rentals to the lessor. This constitutes an implied lease
contract renewal, as the trial court and the Court of Appeals correctly found.
Petitioners can only invoke the right to ask for the rescission of the contract if
their right to first refusal, as embodied in the original Lease Contract, is included
in the implied renewal.

The concept of implied renewal is a matter of equity recognized by law.

Technically, no contract between a lessor and a lessee exists from the end date of
a lease contract to its renewal. But if there is no notice to vacate and the lessee
remains in possession of the property leased, it would only be proper that the
lessor is still paid for the use and enjoyment of the property. Thus, implied
renewal does not extend to all stipulations. Without any express contract renewal,
this Court cannot presume that both parties agreed to revive all the terms in the
previous lease contract.

Since the implied renewal of the Lease Contract did not include the renewal of the
right of first refusal, petitioners have no basis for their claim that the property
should have been offered to them before it was sold to respondent Roselle. The
Court of Appeals did not err in affirming the trial court’s ruling that petitioners
failed to state their cause of action.

Parilla vs. Pilar, G.R. No. 167680, November 30, 2006

Re: Useful improvements

FACTS:
 Petitioner-spouses Samuel and Chinita Parilla and their co-petitioner-son Deodato Parilla,
as dealers of Pilipinas Shell Petroleum Corporation (Pilipinas Shell), have been in
possession of a parcel of land (the property) located at the poblacion of Bantay, Ilocos
Sur, which was leased to it by respondent Dr. Prospero Pilar under a 10-year Lease
Agreement entered into in 1990
 When the lease contract between Pilipinas Shell and respondent expired in 2000,
petitioners remained in possession of the property on which they built improvements
 consisting of a billiard hall and a restaurant, maintained a sari-sari store managed by
Leonardo Dagdag, Josefina Dagdag and Edwin Pugal, and allowed Flor Pelayo, Freddie
Bringas and Edwin Pugal to use a portion thereof as parking lot.
 Despite demands to vacate, petitioners and the other occupants remained in the
property.
 Hence, respondent who has been residing in the United States, through his attorney-in-
fact Marivic Paz Padre, filed on February 4, 2002 a complaint for ejectment before the
Bantay MTC with prayer for the issuance of a writ of preliminary injunction with
damages against petitioners and the other occupants of the property.

MTC’s Ruling
 Ordered herein petitioners and their co-defendants and all persons claiming rights under
them to vacate the property and to pay the plaintiff-herein respondent the amount of
P50,000 as reasonable compensation for the use of the property and P10,000 as attorney’s
fees and to pay the cost of suit
 And it ordered the plaintiff-herein respondent to reimburse defendants Samuel Parilla,
Chinita Parilla and Deodato Parilla the amount of P2,000,000 representing the value of
the improvements introduced on the property.

RTC’s Ruling
 Respondent appealed to RTC the portion of trial court’s decision ordering him to
reimburse petitioners the amount of P2,000,000
 However, the RTC affirmed the MTC Decision.

In CA
 Set aside the questioned order for respondent to reimburse petitioners
o Applied Art. 546 of the New Civil Code, and held that the herein petitioners
tolerated occupancy ... could not be interpreted to mean ... that they are builders or
possessors in good faith, and that for one to be a builder in good faith, it is
assumed that he claims title to the property which is not the case of petitioners.
 Hence, this petition.

Petitioners’ Arguments, among others:

 That neither respondent nor his agents or representatives performed any act to prevent
them from introducing the improvements
 The appellate court should have applied Article 453 of the New Civil Code
 That being builders in good faith, until they are reimbursed of the Two Million Peso-
value of the improvements they had introduced on the property, they have the right of
retention or occupancy thereof pursuant to Article 448, in relation to Article 546, of the
New Civil Code, otherwise, respondent would be unjustly enriched at their expense.

ISSUE: Whether the petitioners are entitled to their claim for reimbursement on the entire value
of improvements.

RULING:
 No.
 The evidence shows that in 1960, a lease contract over the property was forged between
Shell Company of the Philippines Limited and respondent’s predecessors-in- interest.
o In 1990, the lease contract was renewed by Pilipinas Shell and respondent
o Petitioners, being dealers of Pilipinas Shell’s petroleum products, were allowed to
occupy the property.
o Petitioners are thus considered agents of Pilipinas Shell.
 The factual milieu of the instant case calls then for the application of the provisions on
lease under the New Civil Code.
 The right of the lessor upon the termination of a lease contract with respect to useful
improvements introduced on the leased property by a lessee is covered by Article
1678, as follows:
o “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 lessor upon 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. xxxx” (Emphasis supplied)

 The foregoing provision is a modification of the old Code under which the lessee had no
right at all to be reimbursed for the improvements introduced on the leased property, he
being entitled merely to the rights of a usufructuary – right of removal and set-off, but not
of reimbursement.
 The modification introduced in the above-quoted paragraph of Article 1678 on partial
reimbursement was intended to prevent unjust enrichment of the lessor which now
has to pay one-half of the value of the improvements at the time the lease terminates
because the lessee has already enjoyed the same, whereas the lessor could enjoy them
indefinitely thereafter.
 As the law on lease under the New Civil Code has specific rules concerning useful
improvements introduced by a lessee on the property leased, it is erroneous on the part
of petitioners to urge this Court to apply Art. 448, in relation to Art. 546, regarding their
claim for reimbursement and to invoke the right of retention before reimbursement is
made.
 Jurisprudence is replete with cases which categorically declare that Article 448 covers
only cases in which the builders, sowers or planters believe themselves to be owners
of the land or, at least, have a claim of title thereto, but not when the interest is merely
that of a holder, such as a mere tenant, agent or usufructuary.
o A tenant cannot be said to be a builder in good faith, as he has no pretension to be
owner.
 In a plethora of cases, this Court has held that Articles 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.
 o 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.

Application
 Clearly, it is Article 1678 of the New Civil Code, which applies to the present case.
 Petitioners’ claim for reimbursement of the alleged entire value of the improvements
does not thus lie under Article 1678.
 Not even for one-half of such alleged value, there being no substantial evidence, e.g.,
receipts or other documentary evidence detailing costs of construction.
 Besides, by petitioners’ admission, of the structures they originally built – the billiard
hall, restaurant, sari-sari store and a parking lot, only the “bodega-like” sari-sari store
and the parking lot now exist.
 At all events, under Article 1678, it is the lessor who is given the option, upon
termination of the lease contract, either to appropriate the useful improvements by
paying one-half of their value at that time, or to allow the lessee to remove the
improvements.
 This option solely belongs to the lessor as the law is explicit that “should the lessor
refuse to reimburse said amount, the lessee may remove the improvements, even though
the principal thing may suffer damage thereby”
 In this case, it appears that the lessor has opted not to reimburse.

G.R. No. 167017, June 22, 2009

Serafin Cheng
vs Spouses Vittorio and Ma. Helen Donini
Ponente: Corona

Facts:
Cheng agreed to lease his property located in Mandaluyong City to the spouses who intended to
put a restaurant thereon, they agreed to a monthly rental of 17k to commence in December 1990.
Bearing an interim grant of authority executed by Cheng, spouses proceeded to introduce
improvements in the premises.

But before the business could take off and before final lease agreement could be drafted and
signed, the parties began to have serious disagreements regarding the terms and conditions.
Cheng then demanded for the deposits and rentals with the intention of not continuing with the
lease. The spouses ignored the demand and continued to occupy the premises until their
caretaker voluntarily surrendered the property to Cheng.

Spouses then filed an action for specific performance and damages with a prayer for the issues of
writ of preliminary injunction in RTC Pasig. Respondents prayed that petitioner be ordered to
execute a written lease contract for five years, deducting from the deposit and rent the cost of
repairs in the amount of P445,000, or to order petitioner to return their investment in the amount
of P964,000 and compensate for their unearned net income of P200,000 with interest, plus
attorney’s fees.

Petitioner denied the claims and sought for moral and exemplary damages, and attorney's fees.
RTC favored the Cheng.

Respondents appealed to the Court of Appeals (CA) which, in its decision[5] dated March 31,
2004, recalled and set aside the RTC decision, and entered a new one ordering petitioner to pay
respondents the amount of P964,000 representing the latter’s expenses incurred for the repairs
and improvements of the premises.

Issue: spouses possessors in good faith?

Held:
The relationship between petitioner and respondents was explicitly governed by the Civil Code
provisions on lease, which clearly provide for the rule on reimbursement of useful improvements
and ornamental expenses after termination of a lease agreement. Article 1678 states:

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 lessor
upon 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.

With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he
may remove the ornamental objects, provided no damage is caused to the principal thing, and the
lessor does not choose to retain them by paying their value at the time the lease is extinguished.

Contrary to respondents’ position, Articles 448 and 546 of the Civil Code did not apply. Under
these provisions, to be entitled to reimbursement for useful improvements introduced on the
property, respondents must be considered builders in good faith. Articles 448 and 546, which
allow full reimbursement of useful improvements and retention of the premises until
reimbursement is made, apply only to a possessor in good faith or one who builds on land in 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.

Respondents are not entitled to reimbursement for the ornamental expenses under the express
provision of Article 1678. Moreover, since they failed to remove these ornaments despite the
opportunity to do so when they vacated the property, then they were deemed to have waived or
abandoned their right of removal.

(1) petitioner Serafin Cheng is ORDERED to pay respondents, spouses Vittorio and Ma. Helen
Donini, the amount of P171,650.95 as indemnity for the useful improvements; and
(2) respondents, spouses Vittorio and Ma. Helen Donini are ORDERED to pay petitioner Serafin
Cheng the following sums: (a) P100,000.00 moral damages; (b) P50,000.00 exemplary damages
and (c) P25,000.00 attorney’s fees.

Facts:

In an oral lease agreement, Cheng agreed to lease his property to Donini, who intended to put up
a restaurant thereon. Donini then proceeded to introduce improvements in the premises.

However, before respondents’ business could take off and before any final lease agreement could
be drafted and signed, the parties began to have serious disagreements regarding its terms and
conditions. Cheng wrote to Donini, demanding payment of the deposit and rentals, and
signifying that he had no intention to continue with the agreement should Donini fail to pay.
Donini ignored the demand, and continued to occupy the premises, until in April 17, 1991, when
their caretaker voluntarily surrendered the property to the petitioner.

Note that the CA made the following findings and conclusions: 1.) There was no agreement that
the deposit and rentals accruing to petitioner would be deducted from the costs of repairs and
renovation incurred by respondents; 2.). Respondents committed a breach in the terms and
conditions of the agreement when they failed to pay the rentals; 3) There was no valid rescission
on the part of petitioner; 4). Respondents were entitled to reimbursement for the cost of
improvements under the principle of equity and unjust enrichment; and 5) The award of damages
in favor of petitioner had no basis in fact and law.

SC declared that because there was never an absence of law or judicial rules of procedure,
petitioner cannot invoke the concept of equity.

Issue:
Rule on the right of Cheng and Donini as to the improvements, the right to be reimbursed for the
expenses, and the right to retain the property.

Held:

The relationship between petitioner and respondents was explicitly governed by the Civil Code
provisions on lease, which clearly provide for the rule on reimbursement of useful improvements
and ornamental expenses after termination of a lease agreement. Article 1678 states:

“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 lessor
upon 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.
With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he
may remove the ornamental objects, provided no damage is caused to the principal thing, and the
lessor does not choose to retain them by paying their value at the time the lease is extinguished.”

Contrary to respondents’ position, Articles 448 and 546 of the Civil Code did not apply. Under
these provisions, to be entitled to reimbursement for useful improvements introduced on the
property, respondents must be considered builders in good faith. Articles 448 and 546, which
allow full reimbursement of useful improvements and retention of the premises until
reimbursement is made, apply only to a possessor in good faith or one who builds on land in 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.

But respondents cannot be considered possessors or builders in good faith. As early as 1956, in
Lopez v. Philippine & Eastern Trading Co., Inc., the Court clarified that a lessee is neither a
builder nor a possessor in good faith. “This principle of possessor in good faith naturally cannot
apply to a lessee because as such lessee he knows that he is not the owner of the leased property.
Neither can he deny the ownership or title of his lessor. Knowing that his occupation of the
premises continues only during the life of the lease contract and that he must vacate the property
upon termination of the lease or upon the violation by him of any of its terms, he introduces
improvements on said property at his own risk in the sense that he cannot recover their value
from the lessor, much less retain the premises until such reimbursement.”

Under Article 1678 of the Civil Code, the lessor has the primary right (or the first move) to
reimburse the lessee for 50% of the value of the improvements at the end of the lease. If the
lessor refuses to make the reimbursement, the subsidiary right of the lessee to remove the
improvements, even though the principal thing suffers damage, arises. Consequently, on
petitioner rests the primary option to pay for one-half of the value of the useful improvements. It
is only when petitioner as lessor refuses to make the reimbursement that respondents, as lessees,
may remove the improvements. Should petitioner refuse to exercise the option of paying for one-
half of the value of the improvements, he cannot be compelled to do so. It then lies on
respondents to insist on their subsidiary right to remove the improvements even though the
principal thing suffers damage but without causing any more impairment on the property leased
than is necessary.
As regards the ornamental expenses, respondents are not entitled to reimbursement. Article 1678
gives respondents the right to remove the ornaments without damage to the principal thing. But if
petitioner appropriates and retains said ornaments, he shall pay for their value upon the
termination of the lease.

The fact that petitioner will benefit from the improvements introduced by respondents is beside
the point. In the first place, respondents introduced these improvements at their own risk as
lessees. Respondents were not forced or obliged to splurge on the leased premises as it was a
matter of necessity as well as a business strategy. In fact, had respondents only complied with
their obligation to pay the deposit/rent, there would have been no dispute to begin with. If they
were able to shell out more than a million pesos to improve the property, the measly P34,000
deposit demanded by petitioner was a mere drop in the bucket, so to speak. More importantly,
the unequivocal terms of Article 1678 of the Civil Code should be the foremost consideration.

G.R. No. 170509 June 27, 2012

VIEGELY SAMELO vs. MANOTOK SERVICES, INC.

BRION, J.:

Facts: Manotok Services, Inc. (respondent) alleged that it is the administrator of

a parcel of land situated at Tondo, Manila. The respondent entered into a contract
with the petitioner for the lease of a portion of the lot. The lease contract was for a
period of one (1) year, with a monthly rental of P3,960.00. After the expiration of
the lease contract, the petitioner continued occupying the subject premises
without paying the rent. The respondent, thru its President Rosa Manotok, sent a
letter to the petitioner demanding that she vacate the subject premises and pay
compensation for its use and occupancy but petitioner refused.

The respondent filed a complaint for unlawful detainer against the petitioner
before the Metropolitan Trial Court (MeTC), Manila. In her answer, the
petitioner alleged that the respondent had no right to collect rentals because the
subject premises are located inside the property of the Philippine National
Railways (PNR). She also added that the respondent had no certificate of title
over the subject premises. The petitioner further claimed that her signature in the
contract of lease was obtained through the respondent’s misrepresentation. She
likewise maintained that she is now the owner of the subject premises as she had
been in possession since 1944.

The MeTC, decided in Favor of the respondent. Upon appeal, the RTC set aside
the MeTC’s decision and dismissed the complaint. The CA reversed and set aside
the RTC decision, and reinstated the MeTC judgment ruling that the petitioner is
now estopped from questioning the right of the respondent over the subject
property as a tenant cannot controvert the title of his landlord or assert any rights
adverse to that title, without first delivering to the landlord the premises acquired
by virtue of the agreement between themselves.

Issue: Who has a better right of possession over the premises

Held: Respondent has a better right of possession over the subject premises.

"An action for unlawful detainer exists when a person unlawfully withholds
possession of any land or building against or from a lessor, vendor, vendee or
other persons, after the expiration or termination of the right to hold possession,
by virtue of any contract, express or implied." The only issue to be resolved in an
 unlawful detainer case is physical or material possession of the property involved,
independent of any claim of ownership by any of the parties involved. Thus, when
the relationship of lessor and lessee is established in an unlawful detainer case,
any attempt of the parties to inject the question of ownership into the case is
futile, except insofar as it might throw light on the right of possession.

Respondent did not give the petitioner a notice to vacate upon the expiration of
the lease contract and the latter continued enjoying the subject premises for more
than 15 days, without objection from the respondent. By the inaction of the
respondent as lessor, there can be no inference that it intended to discontinue the
lease contract. An implied new lease was therefore created pursuant to Article
1670 of the Civil Code. Since the rent was paid on a monthly basis, the period of
lease is considered to be from month to month, in accordance with Article 1687 of
the Civil Code.

G.R. No. 201787 September 25, 2013

ANALITA P. INOCENCIO, substituting for RAMON INOCENCIO (Deceased),
Petitioner,
vs. HOSPICIO DE SAN JOSE, Respondent. D E C I S I O N CARPIO, J.:

FACTS:

On 1 March 1946, Hospicio de San Jose (HDSJ) leased a parcel of land located in Pasay City to
German Inocencio (German). The lease contract was effective for a period of one year and was
renewed for one-year periods several times. The last written contract was executed on 31 May
1951. Section 6 of the lease contract provides:

Este contrato es intransferible, a menos que para ello se obtenga elconsentimiento escrito del
arrendador.

(This contract is non-transferable unless prior consent of the lessor is obtained in writing.)

In 1946, German constructed two buildings on the parcel of land which he subleased. He also
designated his son Ramon Inocencio (Ramon) to administer the said property.

On 21 September 1990, German received a letter from HDSJ informing him that the increased
rentals shall take effect in November 1990 instead of August 1990, "to give him ample time to
make the necessary rental adjustments with his sublessees."

German passed away in 1997. Evidence on record shows that Ramon did not notify HDSJ of
German’s death.
After
German’s passing, Ramon collected the rentals from the sublessees, and paid the rentals to
HDSJ, and the taxes on the property. On 1 March 2001, HDSJ’s property administrator, Five
Star Multi
-Services, Inc., notified Ramon that HDSJ is terminating the lease contract effective 31 March
2001.

Ramon then sent a letter to HDSJ dated 12 March 2001, suggesting that the lease contract be
renegotiated for the welfare of the sublessees occupying the parcel of land. On 3 April 2001,
HDSJ notified Ramon that the lease contract shall not be renewed because Ramon has
"continually subleased the subject premises to about 20 families (in addition to a commercial
establishment) x x x without the knowledge and consent of the lessor, [HDSJ]." Thereafter,
HDSJ refused to accept Ramon’s tender of payment of rentals.

On 3 March 2005, HDSJ sent a letter to Ramon: (1) reiterating its stand that the lease contract
was terminated effective. 31 March 2001;(2) demanding payment of ₱756,449.26 as unrealized
fruits; and (3) giving him 30 days to vacate the property. The sublessees were given written
notices to vacate within 30 days. HDSJ also posted a Patalastas stating that it is willing to work
out an amicable arrangement with the sublessees, although the latter are not considered as legal
occupants or tenants of the property. Because of this, some of the sublessees refused to
pay rentals to Ramon.

HDSJ also entered into lease contracts with: (1) Harish Chetand as on 25 May 2005;18 (2)
Enrique Negare on 12 April2005;19 (3) Lamberto Estefa on 25 May 2005;20 and (4) Sofronio
Chavez, Jr. on 21 May 2005.

On 28 June 2005, HDSJ filed a Complaint before Branch 48 of the Metropolitan Trial Court of
Pasay (MeTC-Pasay) for unlawful detainer against Ramon and his sublessees. The complaint
alleged that Ramon and his sublessees have been illegally occupying the leased premises since
31 March 2001.In his answer, Ramon claimed that HDSJ interfered with the contractual relations
between him and his sublessees.

While the case was being tried before the MeTC-Pasay, Ramon passed away. He was substituted
by AnalitaP.Inocencio.

The MeTC-Pasay ruled in favor of HDSJ. Aggrieved, Analita filed an appeal before the RTC-
Pasay. However, the RTC-
Pasay dismissed Analita’s
appeal and affirmed in toto the decision of the MeTC-Pasay. Analita then filed a petition for
review under Rule 42 of the Rules of Court before the CA.

The CA affirmed the decision of the RTC-Pasay but modified the award for damages.

Other Source:

FACTS
The respondent Hospicio de San Jose (HDSJ) leased a parcel of land located in Pasay City to
German Inocencio petitioner AKA German. The lease contract was effective for a period of one
year and was renewed for one-year periods several times. The last written contract was executed
on 31 May 1951. Section 6 of the lease contract provides: This contract is nontransferable unless
prior consent of the lessor is obtained in writing.
German constructed 2 Buildings and subleased the premises without the consent of the Lessor
and Ramon (his son) was designated to administer the property. The actions made by the
respondent was only to increase the rentals of the petitioner. When German died, Ramon did not
the respondents and continue to collect from the sub lessee and paid of the tax and rentals of the
property.
In 2001 March, the respondent notified Ramon that HDSJ’s property administrator, Five Star
Multi-Services, Inc., is terminating the lease contract effective 31 March 2001 should expire.
Ramon sent a letter to renegotiate the contract because of the sublease but the respondent refused
on the ground that the petitioner subleases the same without their knowledge and consent.

On June 2005, respondent filed a complaint with the (MeTC-Pasay) for unlawful detainer against
Ramon and his sublessees. The complaint alleged that Ramon and his sublessees have been
illegally occupying the leased premises since 31 March 2001. HDSJ sought the following
damages: Actual damages, in the amount of Php552,195.36 ,17.2 Attorney’s fees in the amount
of Php50,000.00.

Ramon passed away and was substituted by his wife Analita.

The MeTC ruled that that the lease contract could not be transmitted to Ramon as German’s heir
in view of the express stipulation found therein. Since there was "no lease contract between
[HDSJ] and Ramon x x x the latter cannot sublease the property.

Upon appeal to RTC Pasay it dismissed the complaint and held that "even before the termination
of the contract, [Ramon] had no right to sublease the said property due to the in-transferability
clause in the contract.

And on Petition for review to CA, it likewise affirmed in Toto the decision of the RTC with
modification to award of amount of damages.

ISSUE

(1) Whether or not there was no tortious interference on the part of HDSJ?

(2) whether or not the sublease contract was valid?

HELD: (1) NO.

Article1314 of the Civil Code states:

Art. 1314. Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party.

Tortious interference has the following elements:

(1) existence of a valid contract.

(2) knowledge on the part of the third person of the existence of the contract; and

(3) interference of the third person without legal justification or excuse

In So Ping Bun v. Court of Appeals,42 we held that there was no tortious interference if the
intrusion was impelled by purely economic motives.

In this case the evidence shows that HDSJ entered into agreements with Ramon’s former
sublessees for purely economic reasons (payment of rentals). HDSJ had a right to collect the
rentals from the sublessees upon termination of the lease contract. It does not appear that HDSJ
was motivated by spite or ill will towards the Inocencios.

HELD: (2) YES.

The general rule, therefore, is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising therefrom are not
transmissible by

(1) their nature, (2) stipulation or (3) provision of law.

In the subject Contract of Lease, not only were there no stipulations prohibiting any
transmission of rights, but its very terms and conditions explicitly provided for the transmission
of the rights of the lessor and of the lessee to their respective heirs and successors. The contract
is the law between the parties. The death of a party does not excuse nonperformance of a
contract, which involves a property right, and the rights and obligations thereunder pass to the
successors or representatives of the deceased. Similarly, nonperformance is not excused by the
death of the party when the other party has a property interest in the subject matter of the
contract.

Ramon had a right to sublease the premises since the lease contract did not contain any
stipulation forbidding subleasing. Article 1650 of the Civil Code states:

Art. 1650. When in the contract of lease of things there is no express prohibition, the lessee may
sublet the thing leased, in whole or in part, without prejudice to his responsibility for the
performance of the contract toward the lessor.

Therefore, we hold that the sublease contracts executed by Ramon were valid.
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated 12 January 2012 of the
Court of Appeals in CA-G.R. SP No. 117009 is AFFIRMED with modification. The case is
hereby REMANDED to the Metropolitan Trial Court of Pasay, Branch 48, for determination of
the value or the improvements to be paid to the lnocencios, if Hospicio de San Jose desires to
keep the improvements. Otherwise, the Inocencios shall be allowed to demolish the buildings at
their expense.

VIRAY v. IAC
G.R. No. 81015 | July 4, 1991, | Narvasa, J. |Erika
Pet: CRESENCIO VIRAY and BENJAMIN D. DE ASIS
Resp: HON. INTERMEDIATE APPELLATE COURT and RUSTICO VICTOR

FACTS:
 A lease over Apartment A at 1836 Sulu Street, Manila was executed on April 1, 1981 by
the owner de Asis, and Rustico Victor (lessee).
 The agreement included stipulations (a) fixing the term of the lease and (b) governing the
lessors right of repossession

(a. Term of Lease)

2. The term of this lease shall be for a period of three (3) months and shall be impliedly
renewable from month to month under the same terms and conditions, unless revised by the
parties in writing with previous notice to each other of at least fifteen (15) days.

(b. Repossession by Lessor)

7. Upon failure of the Lessee to comply with any of the terms and conditions of this lease, as
well as such other terms and conditions which may be imposed by the Lessor prior to and/or
upon renewal of this lease agreement as provided in par. 2 above, then the Lessor shall have the
right, upon five (5) days written notice to the Lessee or in his absence, upon written notice
posted at the entrance of the premises leased, to enter and take possession of the said premises
holding in his trust and custody and such possessions and belongings of the Lessee found therein
after an inventory of the same in the presence of a witness, all these acts being hereby agreed to
by the Lessee as tantamount to his voluntary vacation of the leased premises without the
necessity of suit in court.
 October 1983: Spouses Victor left for Ontario, Canada and did not return to PH until Feb
1985. They left the apartment in the care of their son, Ramon.
 Believing that the Victor spouses had abandoned the apartment — they are having been
away for more than a year, and the place being occupied by Ramon, an unauthorized
stranger — De Asis brought suit in the MTC in Dec 1984 to evict the latter.
 The spouses returned in 1985 and on their representation that they did not mean to give
up the apartment, the case was dismissed on joint motion of the parties
  However, Rustico did not re-occupy the apartment but continued to leave it in the care of
his son Ramon, who also later left for Canada. Ramon asked his brother look after the
place, but the bro did not actually move in; all he did was to install a padlock at the main
door, visit the place once a week, and sleep there occasionally.
 When De Asis learned of this state of affairs sometime in December, 1985, he went to the
place to see for himself if it was true. He saw there was nobody in the apartment, but he
could not get inside because it was locked.
 De Asis then caused the cutting off of the electrical and water service connections and, on
the following day, posted at the main door of the apartment a notice of termination of the
lease, on the ground of abandonment and failure to pay rentals in accordance with the
contract.
 Jan 1986: De Asis returned to the apartment and noted that the termination notice he had
posted at the door was no longer there.
 He posted another notice, this time announcing that he would repossess the place after
five (5) days in order to secure it from fire, repair it to preserve its value, and inventory
such of the lessee's things as were inside which might thereafter be claimed at his
residence in Quezon City.
 On January 5, 1986, as announced, and in the presence of the barangay authorities, De
Asis had the door of the apartment opened by a carpenter and hauled to his residence the
things found inside after making an inventory of them. Thereafter, he made repairs on the
apartment at a cost of P13,108.00, and then leased it to Cresencio C. Viray.
 Not long afterwards an action of forcible entry was instituted in the Metropolitan Trial
Court against De Asis and his new lessee, Viray, by Roldan Victor in behalf and in the
name of his father, Rustico. The action was docketed as Civil Case No. 11635-CV and
resulted in a judgment rendered on December 29, 1986 "against the defendants . . De
Asis (owner-lessor) and Sgt. C. Viray (present occupant) ordering the said defendants to
restore plaintiff to the possession and enjoyment of the leased premises at No. 1836-A
Sulu Street, Sta. Cruz, Manila and to pay the costs of this suit."

 MTC: Rustico Victor could not be deemed to have abandoned the premises, and even if
he had, the apartment could not be repossessed without Judicial action
 RTC: Affirmed MTC. Directed MTC to issue a writ of possession immediately in favor
of the Victors, and ordered the return of the personal belongings of plaintiff
 CA: Affirmed RTC and dismmised De Asis and Viray’s petition

ISSUES + RATIO
1. WON the posting in the premises, in the first week of December, 1985, of notice of
termination of the lease had legally caused its cessation or extinguishment as of
December 31, 1985- YES

It is indisputable that the parties' written agreement created a lease on a month-to-month basis.
Such a lease, therefore, must be construed, by established doctrine, as providing a definite period
and as terminable by notice at the end of any given month.

It appears undisputed, too, that the lessor had posted a notice of termination of the lease at the
doorway of the leased apartment and that notice had subsequently been noted and removed by
the lessee's representative. The giving of notice of termination in this manner is explicitly
authorized by Section 2, Rule 70 of the Rules of Court, which pertinently provides that a demand
by a landlord for payment of rent or comply with the conditions of the lease and to vacate the
premises may inter alia be made "by posting such notice on the premises if no persons be found
thereon."

2. WON De Asis had "the legal and contractual right to repossess the premises" without and
independently of prior judicial authority- YES

The lease having thus been licitly terminated, the lessee, Rustico Victor and his sons became
obliged to surrender the leased apartment to the lessor. They did not. They stayed away from the
place and did not show up during the repossession undertaken by the lessor, announced in
advance through the posting of another notice on the door of the apartment.

The stipulation referred to in #7 does by its terms empower the lessor to repossess the apartment
extrajudicially. [see beginning of digest]

Consing v. Jamandre: sustained the authority to to take possession of the leased premises,
including all its improvements thereon without compensation and without necessity of resorting
to any court action in a written lease agreement. This Court ruled that the stipulation "is in the
nature of a resolutory condition, for upon the exercise by the Sub-lessor of his right to take
possession of the leased property, the contract is deemed terminated;"

AmLaw: where a lease provides that if the tenants holds over after the expiration of his term, the
landlord may enter and take possession of the premises, using all necessary force to obtain the
actual possession thereof

Apundar v. Andrin, citing Medel v. Militante: when the tenant denies his landlord's title this
gives rise to a right of action on the part of the landlord to recover immediate possession of the
denied premises; and it follows as a necessary corollary from this proposition that if the landlord
acquires possession peacefully, as in this case, by the mere act of reentry, the tenant cannot
maintain an action to put the landlord out.

DISPOSITIVE: CA REVERSED AND SET ASIDE, and another rendered DISMISSING Civil
Case No. 115635-CV of the MTC of Manila. Viray won.

FIRST DIVISION G.R. No. L-55480. June 30, 1987.] PACIFICA MILLAREPACIFICA
MILLARE, petitioner, vs.. HON. HAROLD M. HERNANDO, In HON. HAROLD M.
HERNANDO,
 In his capacity as Presiding Judge, Court of First Instance of Abra, his capacity as Presiding
Judge, Court of First Instance of Abra, Second Judicial District, Branch I, ANTONIO CO and
ELSA CO Second Judicial District, Branch I, ANTONIO CO and ELSA CO, respondents. D E C
I S I O ND E C I S I O NFELICIANOFELICIANO, J p: On 17 June 1975, a five-year Contract
of Lease was executed between petitioner Pacifica Millare as lessor and private respondent Elsa
Co, married to Antonio Co, as lessee.

Under the written agreement, which was scheduled to expire on 31 May 1980, the lessor-
petitioner agreed to rent out to the lessee at a monthly rate of P350.00 the "People’s Restaurant",
a commercial establishment located at the corner of McKinley and Pratt Streets in Bangued,
Abra.

The present dispute arose from events which transpired during the months of May and July in
1980. According to the Co spouses, sometime during the last week of May 1980, the lessor
informed them that they could continue leasing the People's Restaurant so long as they were
amenable to paying increased rentals of P1,200.00 a month. In response, a counteroffer of
P700.00 a month was made by Co spouses. At this point, the lessor allegedly stated that the
amount of monthly rentals could be resolved at a later time since “the matter is simple among
us", which alleged remark was supposedly taken by the spouses Co to mean that the Contract of
Lease had been renewed, prompting them to continue occupying the subject premises and to
forego their search for a substitute place to rent.

In contrast, the lessor flatly denied ever having considered, much less offered, renewal of the
Contract of Lease. The variance in versions notwithstanding, the record shows that on 22 July
1980, Mrs. Millare wrote the Co spouses requesting them to vacate the leased premises as she
had no intention of renewing the Contract of Lease which had, in the meantime, already expired.

In reply, the Co spouses reiterated their unwillingness to pay the P1,200.00 monthly rent
supposedly sought by Mrs. Millare which they considered "highly excessive, oppressive and
contrary to existing laws". They also signified their intention to deposit the amount of rentals in
court, in view of Mrs. Millare's refusal to accept their counter-offer.

Another letter of demand from Mrs. Millare was received on 28 July 1980 by the Co spouses,
who responded by depositing the rentals for June and July (at 700.00 a month) in court. On 30
August 1980, a Saturday, the Co spouses jumped the gun, as it were, and filed a Complaint
(docketed as Civil Case No. 1434) with the then Court of First Instance of Abra against Mrs.
Millare and seeking judgment

(a) ordering the renewal of the Contract of Lease at a rental rate of P700.00 a month and for a
period of ten years,

(b) ordering the defendants to collect the sum of P1,400.00 deposited by plaintiffs with the court,
and

(c)ordering the defendant to pay damages in the amount of P50,000.00.

The following Monday, on 1 September 1980, Mrs. Miliare filed an ejectment case against the
Co spouses in the Municipal Court of Bangued, Abra, docketed as Civil Case No. 661. The
spouses Co, defendants therein, subsequently set up lis pendens as a defense against the
complaint for ejectment. Mrs. Millare, defendant in Civil Case No. 1434, countered with an
Omnibus Motion to Dismiss grounded on (a) lack of cause of action due to plaintiffs' failure to
establish valid renewal of the Contract of Lease, and (b) lack of jurisdiction by the trial court
over the complaint for failure of plaintiffs to secure a certification from the Lupong Tagapayapa
of the barangay wherein both disputants reside attesting that no amicable settlement between
them had been reached despite efforts to arrive at one, as required by Section 6of Presidential
Decree No. 1508.

The Co spouses opposed the motion to dismiss. In an Order dated 15 October 1980, respondent
judge denied the motion to dismiss and order the renewal of the Contract of Lease. Furthermore,
plaintiffs were allowed to deposit all accruing monthly rentals in court, while defendant Millare
was directed to submit her answer to the complaint. A motion for reconsideration was
subsequently filed which, however, was likewise denied. Hence, on 13 November 1980, Mrs.
Millare filed the instant Petition for Certiorari, Prohibition and Mandamus, seeking injunctive
relief from the above-mentioned orders. This Court issued a temporary restraining order on 21
November 1980 enjoining respondent, judge from conducting further proceedings in Civil Case
No. 1434. 1Apparently, before the temporary restraining order could be served on the respondent
judge, he rendered a "Judgment by Default" dated 26 November 1980ordering the renewal of the
lease contract for a term of 5 years counted from the expiration date of the original lease contract
and fixing monthly rentals thereunder atP700.00 a month, payable in arrears. On 18 March 1981,
this Court gave due course to the Petition for Certiorari, Prohibition and Mandamus. 1212Two
issues are presented for resolution: (1) whether or not the trial court acquired jurisdiction over
Civil Case No. 1434; and (2) whether or not private respondents have a valid cause of action
against petitioner.

Turning to the first issue, petitioner's attack on the jurisdiction of the trial court must fail, though
for reasons different from those cited by the respondent judge. We would note firstly that the
conciliation procedure required under P.D. 1508 is not a jurisdictional requirement in the sense
that failure to have prior recourse to such procedure would not deprive a court of its jurisdiction
either over the subject matter or over the person of the defendant. Secondly, the record shows
that two complaints were submitted to the barangay authorities for conciliation — one by
petitioner for ejectment and the other by private respondents for renewal of the Contract of
Lease. It appears further that both complaints were, in fact, heard by the Lupong Tagapayapa in
the afternoon of 30 August1980. After attempts at conciliation had proven fruitless,
Certifications to File Action authorizing the parties to pursue their respective claims in court
were then issued at 5:20p.m. of that same afternoon, as attested to by the Barangay Captain in a
Certification presented in evidence by petitioner herself. 1515Petitioner would, nonetheless,
assail the proceedings in the trial court on a technicality, i.e., private respondents allegedly filed
their complaint at 4:00 p.m. of 30 August 1980, or one hour and twenty minutes before the
issuance of the requisite certification by the Lupong Tugapayapa. The defect in procedure
admittedly initially present at that particular moment when private respondents first filed the
complaint in the trial court, was cured by the subsequent issuance of the Certifications to File
Action by the barangay Lupong
The term 'to be renewed' as expressly stipulated by the herein parties in the original contract of
lease means that the lease may be renewed for another term of five (5) years; it is equivalent to a
promise made by the lessor to the lessee, and as a unilateral stipulation, obliges the lessor to
fulfill her promise; of course the lessor is free to comply and honor her commitment or back-out
from her promise to renew the lease contract; but, once expressly stipulated, the lessor shall not
be allowed to evade or violate the obligation to renew the lease because, certainly, the lessor may
be held liable for damages caused to the lessee as a consequence of the unjustifiable termination
of the lease or renewal of the same; In other words, the lessor is guilty of breach of contract:
Since the original lease was fixed for five (5) years, it follows, therefore, that the lease contract is
renewable for another five (5) years and the lessee is not required before hand to give express
notice of this fact to the lessor because it was expressly stipulated in the original lease contract to
be renewed; Wherefore, the bare refusal of the lessor to renew the lease contract unless the
monthly rental is P1,200.00 is contrary to law, morals, good customs, public policy, justice and
equity because no one should unjustly enrich herself at the expense of another. Article 1197 and
1670 of theme Civil Code must therefore govern the case at bar and whereby this Court is
authorized to fix the period thereof by ordering the renewal of the lease contract to another fixed
term of five (5) years." Clearly, the respondent judge's grasp of both the law and the English
language is tenuous at best. We are otherwise unable to comprehend how he arrived at the
reading set forth above. Paragraph 13 of the Contract of Lease can only mean that the lessor and
lessee may agree to renew the contract upon reaching agreement on the terms and conditions to
be embodied in such renewal contract. Failure to reach agreement on the terms and conditions of
the renewal contract will of course prevent the contract from being renewed at all. In the instant
case, the lessor and the lessee conspicuously failed to reach agreement both on the amount of the
rental to be payable during the renewal term, and on the term of the renewed contract. The
respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the “Judgment by
Default" by which he ordered the renewal of the lease for another term of five years and fixed
monthly rental thereunder at P700.00 a month. Article 1197 of the Civil Code provides as
follows: “If the obligation does not fix a period, but from its nature and the circumstances it can
be inferred that a period was intended, the courts may fix the duration thereof. The courts shall
also fix the duration of the period when it depends upon the will of the debtor. In every case, the
courts shall determine such period as may, under the circumstances, have been probably
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them."
(Emphasis supplied.). The first paragraph of Article 1197 is clearly inapplicable, since the
Contract of Lease did in fact fix an original period of five years, which had expired. It is also
clear from paragraph13 of the Contract of Lease that the parties reserved to themselves the
faculty of agreeing upon the period of the renewal contract. The second paragraph of Article
1197 is equally clearly inapplicable since the duration of the renewal period was not left to the
will of the lessee alone, but rather to the will of both the lessor and the lessee. Most importantly,
Article 1197 applies only where a contract of lease clearly exists. Here, the contract was not
renewed at all, there was in fact no contract at all the period of which could have beenfixed.
Article 1670 of the Civil Code reads thus: “If at the end of the contract the lessee should continue
enjoying the thing left for15 days with the acquiescence of the lessor and unless 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 tenus of the original contract shall be revived." (Emphasis supplied.). The
respondents themselves, public and private, do not pretend that the continued occupancy of the
leased premises after 31 May 1980, the date of expiration of the contract, was with the
acquiescence of the lessor. Even if it be assumed that tacitare conduccion had occurred, the
implied new lease could not possibly have a period of five years, but rather would have been a
month-to-month lease since the rentals (under the original contract) were payable on a monthly
basis. At the latest, an implied new lease (bad one arisen) would have expired as of the end of
July 1980 in view of the written demand served by the petitioner upon the private respondents to
vacate the previously leased premises. It follows that the respondent judge's decision requiring
renewal of the lease has no basis in law or in fact. Save in the limited and exceptional situations
envisaged in Articles 1197and 1670 of the Civil Code, which do not obtain here, courts have no
authority to prescribe the terms and conditions of a contract for the parties. As pointed out by
Mr. Justice J.B.L. Reyes in Republic vs, Philippine Long-Distance Telephone, Co.,"[P]parties
cannot be coerced to enter into a contract where no agreement is had between them as to the
principal term and conditions of the contract. Freedom to stipulate such terms and conditions is
of the essence of our contractual system, and by express provision of the statute, a contract may
be annulled if tainted by violence, intimidation or undue influence (Article 1306, 1336, 1337,
Civil Code of the Philippines). Contractual terms and conditions created by a court for two
parties are a contradiction in terms. If they are imposed by a judge who draws upon his own
private notions of what “morals, good customs, justice, equity and public policy” demand, the
resulting “agreement" cannot, by definition, be consensual or contractual in nature. It would also
follow that such coerced terms and conditions cannot be the law as between the parties
themselves. Contracts spring from the volition of the parties. That volition cannot be supplied
by a judge and a judge who pretends to do so, acts tyrannically, arbitrarily and in excess of
his jurisdiction.

WHEREFORE, the Petition for Certiorari, Prohibition and Mandamus is granted. The Orders of
the respondent judge in Civil Case No. 1434 dated 26 September 1980 (denying petitioner’s
motion to dismiss) and 4 November 1980 (denying petitioner's motion for reconsideration), and
the "Judgment by Default" rendered by the respondent judge dated26 November 1980, are
hereby annulled and set aside and Civil Case No. 1434 is hereby dismissed. The temporary
restraining order dated 21 November 1980 issued by this Courtis hereby made permanent. No
pronouncement as to costs.

SO ORDERED.

CAR COOL PHILIPPINES, INC., represented in this act by its President

and General Manager VIRGILIO DELA ROSA, petitioner, vs. USHIO
REALTY AND DEVELOPMENT CORPORATION, respondent
G.R. No. 138088. January 23, 2006

Facts:
The spouses Hector and Gloria Hizon Lopez were the original owners of the
property involved in the case at bar. They leased it to Car Cool since 1972. On
1992, they entered into a Verbal Lease Agreement for two years. On 1995, the
spouses informed Car Cool of their intention to sell the property. They gave the
latter the option to buy, however they ignored the offer. For this reason, the
spouses terminated the Verbal Lease Agreement with Car Cool and gave notice to
the company to vacate the property on the last day of August 1995. In the same
month, said property was sold to USHIO. The latter gave an extension to Car
Cool to vacate the same up to the last day of September 1995. USHIO gave their
final demand on December 3 and when Car Cool still ignored the notice, USHIO
filed an ejectment case against the petitioner. Previous to this, Car Cool filed a
criminal complaint against USHIO for alleged Robbery with force, Malicious
mischief, and grave coercion during the attempt by the USHIO to eject the former
and that tey know that there is an existing contract between them and the Lopezes.
They also filed a complaint for specific performance and damages against the
spouses invoking that they made an advance payment in checks to them as
monthly rentals for the years 1995 and 1996. The lower courts rendered judgment
in favor of the respondent. The Court of Appeals affirmed the decision with
modification with regard to the monthly rental period, thus this petition.
Issue:
Whether or not the award of damages to the respondent by way of rentals and
attorney’s fees constitute unjust enrichment.
Ruling:
Records show that the advance payment for rentals made by Car Cool to the
spouses Lopez were never encashed. In fact the latter offered to return the check
payments but Car Cool refused. Thus the sale transaction between Lopezes and
USHIO was valid and so the latter is the rightful owner from August 1995.
The award made to USHIO is legal for rentals. There is unjust enrichment when a
person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of
justice, equity and good conscience. The principle of unjust enrichment under
Article 22 of the Civil Code requires two conditions: (1) that a person is benefited
without a valid basis or justification, and, (2) that such benefit is derived at
another’s expense or damage. The requisites for unjust enrichment are not present
on the part of the respondent. There is no unjust enrichment when the person who
will benefit has valid claim to such benefit.
As regards the attorney’s fees, the Appellate Court failed to state explicitly in its
decision the basis for the award, hence it cannot be recovered as part of damages.
This is based on the policy that no premium should be placed on the right to
litigate. The basis for its award must be based from factual, legal and equitable
justification.