[G.R. NO.

163763 : November 10, 2006]

MALAYAN REALTY, INC. represented by ALBERTO C. DY., Petitioner, v. UY HAN YONG,

Respondent.

CARPIO MORALES, J.:

Topic: Lease Contract and Extension

Doctrine: Article 1687 of the New Civil Code

Facts: Malayan Realty, Inc. (Malayan) owns an apartment unit in Manila. In 1958, Malayan
entered into a verbal lease contract with Uy Han Yong (Uy) over the property, with a monthly
rental of P262.00. Over the years, the rental increased yearly, reaching P4,671.65 by 2001.
In July 2001, Malayan sent Uy a written notice terminating the lease contract effective
August 31, 2001. Despite receiving the notice, Uy refused to vacate the property, leading to
Malayan filing a complaint for ejectment. The trial court dismissed Malayan's complaint, but
the Regional Trial Court (RTC) extended the lease for five years, considering Uy's age and
long occupancy. The Court of Appeals (CA) modified the RTC decision, shortening the lease
extension to one year and increasing the rental at 10% per annum.

Issue: Whether the Court of Appeals erred in shortening the extension of the lease to one
year and increasing the rental rate.

Ruling: No, the Court of Appeals did not err. Article 1687 of the New Civil Code states that if
the period for the lease has not been fixed, it is understood to be from month to month. The
lease contract thus expires at the end of each month unless the extension of said term has
been sought and granted by the court. In this case, the lease period was not specified, and
Uy continued to occupy the premises after the expiration of the lease, warranting judicial
intervention. The courts have the discretion to grant a longer term based on equitable
reasons, considering the circumstances of the case. The Court of Appeals properly
exercised its discretion in shortening the extension to one year and increasing the rental rate
at 10% per annum, taking into account the change in values and the fair compensation due
to Malayan for the use of its property. Therefore, the petition is granted, and Uy is ordered to
vacate the property and pay the specified monthly rentals until he surrenders possession.