LEASE
G.R. No. L-68021 February 20, 1989
HEIRS OF FAUSTA DIMACULANGAN, petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and FELIMON
UY, respondents.
Jerry D. Baares for petitioners.
Luis T. Tuason, Jr. for private respondent.
FERNAN, C.J.:
This is a petition for review on certiorari of the July 2, 1984 decision of the Third Special
Cases Division, Intermediate Appellate Court, in AC-G.R. SP. No. 01230, entitled "Heirs of
Fausta Dimaculangan v. Hon. Baltazar R. Dizon, et al." dismissing for lack of merit the
petition for review of the Orders dated June 6, 1983 and July 13, 1983, issued by the
Regional Trial Court of Pasay City, Branch CXIII in Civil Case No. 8865-P which in turn
affirmed on appeal the October 16, 1980 decision of Hon. Mariano A. Lacsamana, then
presiding judge, Pasay City Court, Branch 11, in Civil Case No. 13591, entitled "Felimon Uy
v. Fausta Dimaculangan, for Ejectment".
Fausta Dimaculangan and her children, petitioners herein, occupy by lease an apartment
located at No. 2490 E. Zamora St., Pasay City, at a monthly rental of P260.00. They have
been living in said premises since 1961. To augment its income, the family maintains therein
a sari-sari store and bakes hot pan de sal to sell to the general public. The capital
investment involved is claimed to be P3,200.00 only.
On July 5, 1978, private respondent Felimon Uy sent Fausta Dimaculangan a registered
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. Receiving no reply to his
letter, the private respondent sent a second one, demanding payment of P750.00 covering
unpaid rentals for the months of August, September and October, 1978 but still he received
no answer to his-demand. Thus, he filed with the City Court of Pasay City a complaint for
ejectment 1 praying, among others, that said court render judgment ordering Fausta
Dimaculangan and all persons claiming rights under her to vacate the leased premises.
In her answer with compulsory counterclaim, 2 Fausta Dimaculangan admitted that she
received plaintiff's letter of July 5, 1978 but claimed that she sent plaintiff a reply which was
however returned undelivered because plaintiff distorted his address. She denied having
been in default in her monthly rentals to the plaintiff, and alleged that she has never been in
default during the entire period of her occupancy of the premises since 1961 up to the
present. In fact she tried to pay the plaintiff who did not want to collect the monthly rentals,
even in the form of money orders which were however, returned unclaimed. She countered
that the filing of the complaint was just a scheme to compel her to agree to the capricious
and whimsical demand for an unconscionable increase in the monthly rental from P250.00
to P1,500.00, in clear violation of the provisions of P.D. No. 20, as amended. She further
alleged that when she received the plaintiff s letter of October 3, 1978, she caused the
payment of the rentals for August, September and October, 1978. Defendant Fausta
Dimaculangan prayed to the trial court that the complaint be dismissed and a favorable
judgment be rendered in her favor.
Pending trial of the case, Fausta Dimaculangan died. She was substituted by her children
as defendants.
After trial, the presiding judge of the City Court of Pasay found that the premises in question
is partly residential and partly commercial; that defendant has no arrears and that the latter
replied to plaintiff s demand letter and paid by way of money orders her rentals which were
however, returned unclaimed.
On October 16, 1980, the aforementioned court rendered a decision increasing the monthly
rentals and fixing a definite period for the term of the lease, the dispositive portion of which
reads:
WHEREFORE, AND IN VIEW OF THE FOREGOING, the defendant is
hereby ordered to pay the plaintiff the amount of P500.00 per month, as
monthly rental from August 1978 to August 1980; defendant shall be
granted a Contract of Lease for two (2) years from August 1980 to August
1982 of which the defendant shall pay the plaintiff a monthly rental of
P750.00; the party-litigants are ordered to pay the amount of P1,500.00 to
their respective counsels by way of attorney's fees; and the party-litigates
(sic) shall equally pay the costs of suit.
SO ORDERED. 3
On Appeal, the Regional Trial Court, Branch CXIII, Pasay City, affirmed the aforesaid
decision of the City Court and denied petitioner's motion for reconsideration. 4
On review by certiorari, the Intermediate Appellate Court, now Court of Appeals, dismissed
the petition for lack of merit. 5
Hence, the instant petition for review, raising the following issues for the resolution of this
Court:
1. May the trial court in a complaint for ejectment increase the rental
agreed upon by the parties, and in the instant case, from the agreed
P250.00 to P500.00, and then to P750.00, without violating the provisions
of existing laws;
2. May the trial court 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;
3. In two dismissing the petition for review, and in effect, affirming the
judgments of the Metropolitan Trial Court, and the Regional Trial Court,
has the Honorable Intermediate Appellate Court committed a grave abuse
of discretion amounting to lack or absence of jurisdiction, or at least a
grave reversible error of a question of law, and/or of fact and law,
correctible by the instant petition ? 6
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.
Under the circumstances, there appears to be no dispute that subject contract of lease is At any rate, the period fixed by respondent Judge which appears acceptable to the lessor
covered by P.D. 20 and later by B.P. No. 25. has expired in 1982 and has therefore become moot and academic, aside from the fact that
The decisive issue therefore, in this case, is whether or not subject contract of lease is for with private respondent's conformity, it has become the latter's term which is well within his
an indefinite period, for the purpose of applying Presidential Decree No. 20. authority; that is, to terminate the contract and enter into a new one.
The pertinent provision of P.D. No. 20 reads: WHEREFORE, the petition is hereby dismissed for lack of merit, with costs against the
SEC. 4. Except when the lease is for a definite period, the provisions of petitioner.
paragraph (1) of Article 1673 of the Civil Code of the Philippines insofar SO ORDERED.
as they refer to dwelling unit or land on which another's dwelling is located
shall be suspended until otherwise provided; but other provisions of the
Civil Code and the Rules of Court of the Philippines on lease contracts,
insofar as they are not in conflict with the provisions of this act, shall
apply.
To exempt the lease from the application of P.D. No. 20, it must be one with a definite
period.
It will be recalled that the agreement between the original lessor and lessee was unwritten,
so that it is difficult to determine with certainty the terms and conditions agreed upon.
Be that as it may, it is undisputed that the rentals are paid monthly. This Court had already
ruled that leases are deemed on a "month-to-month basis", if rentals therefore are paid
monthly. 7
Similarly, it is well settled that a lease contract "on a month-to month basis" provides for a
definite period and may be terminated at the end of any month. 8 By express exception of
P.D. No. 20, judicial ejectment lies when the lease is for a definite period or when the fixed
or definite period agreed upon has expired. 9
Even more recently, this Court clarified that "(I)n exempting from suspension ejectments on
the ground of the expiration of the lease period, Section 4 of Presidential Decree No. 20
made no distinction between oral and written lease contracts and no distinction may,
therefore, be inferred. Consequently, at the time of filing her action the private respondent
had a clear and indubitable right to eject the petitioners, the period of the latter's lease
expiring at the end of every monthly period ... 10 The Court further pointed out that the Rent
Control Law now in force, Batas Pambansa Blg. 877, has erased the distinction between
oral and written leases insofar as expiration of the lease period as a ground for judicial
ejectment in leases covered by said law, is concerned. 11
In view of the foregoing, there appears to be no necessity to discuss the other issues in this
case; more specifically whether or not the trial court may increase the rental and/or alter the
period of the lease from an indefinite period to a definite period; both issues having become
moot and academic.
Citing the case of Mabalot v. Madela Jr. 12 the Court of Appeals ruled that the petition has
been rendered moot and academic by the death of the lessee Fausta Dimaculangan, which
terminated the lease in her favor. It will be noted however, that in the aforecited case, those
seeking to continue in possession of the premises were not the heirs of the lessee but
merely members of the lessee's household, which does not apply in the case at bar, where
petitioners are the lessee's children. Authorities are of the view that lease is not essentially
personal in character, thus the right is transmissible to the heirs. 13
G.R. No. 95146 May 6, 1991
SPOUSES ROBERTO E. FERMIN and MAY LINDA FERRAREN, petitioners,
vs.
HON. COURT OF APPEALS and SPOUSES MELITON P. ALPAS, JR. AND LUCY D.
ALPAS, respondents.
Puno, Agag & Dumlao Associates for petitioners.
Ismael J. Andres for private respondents.
GANCAYCO, J.:
The renewal of a contract of lease is the issue addressed by this petition.
The facts as found by the trial court are not disputed.
1. On March 15, 1976, spouses Roberto E. Fermin and Maylinda Ferraren (herein
plaintiffs) and spouses Meliton P. Alpas, Jr., and Lucy D. Alpas (herein defendants)
as lessors and lessees, respectively, entered into a contract of lease covering the
parcel of land (375 square meters) owned by the spouses Fermin at No. 157
Pinatubo Street, Mandaluyong, Metro Manila, for a term of ten (10) years,
renewable for another term of ten (10) years upon mutual agreement of the parties.
Rental was fixed at P5,000.00 yearly, to be increased by 10% at the end of each
five year period. (Exh. "A").
The pertinent provisions of the contract of lease which lie at the core of this
controversy are quoted hereunder:
1) The term of the lease shall be ten (10) years counted from the date the
document is registered and annotated on the Original Certificate of Title
No. 395344 and the lease shall be renewable for another term of ten (10)
years upon mutual agreement of the parties.
2) The rental for the property leased hereunder shall be at the rate of
FIVE THOUSAND PESOS per annum; provided, that the rental shall be
increased by ten (10) percent at the end of each five (5) year period,
counted from the effectivity of this lease agreement.
3) The parties hereby agree that during the renewal period after the ten
(10) year term, the LESSEE may, at its own option and discretion
terminate the lease, after giving the LESSORS a previous written notice in
advance, at least one hundred eighty (180) days from the effectivity date
of termination.
4) Upon termination of the lease agreement occurring after the first ten
(10) years, all improvements which are permanent in nature that may
have been constructed by the LESSEE on the leased properties, shall
become properties of the LESSORS, their heirs or assigns, without any
further obligation to reimburse the LESSEES. That the LESSEE has the
priority to purchase the property if the LESSOR decides to sell said
property.
2. Defendants built on the leased premises a warehouse structure of strong
materials worth not less than P200,000.00.
3. While in the United States of America, in October, 1980, Roberto Fermin, with
marital consent from Maylinda Ferraren, executed a General Power of Attorney
naming and constituting his mother, Eduviges Espinas vda de Martin as his
attorney-in-fact, who was tasked, among other things, to exercise general control
and supervision over his property in the Philippines.
4. On November 14, 1985 Eduviges E. Fermin for herself and as attorney-in-fact of
her other children, including Roberto E. Fermin (plaintiff in this case), as principal,
entered into a Property Administration Agreement with AGRA & Co., Inc.,
represented by its president, Rose B. Reyes, as agent, naming and constituting
and appointing the latter to be their true and lawful attorney-in-fact (Exh. "5".).
5. 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. (Exh. "2").
6. On May 31, 1986, AGRA & Co., Inc., as collection agent of the plaintiffs
collected payment from the defendants the sum of One Thousand Eight Hundred
Pesos (P1,800.00) as partial payment for the annual rental covering March 15,
1986 to March 15, 1987 (Exhibits "3" and "4").
7. In a letter dated 6 February 1987, AGRA & Co., Inc., informed Mr. Alpas that
said company would no longer act in any representative capacity for the Fermins
and advising to refer all matters to the Fermin's attorney-in-fact, Ms. Eduviges E.
Fermin (Exhibit "6").
8. Key Management Corporation in the letter dated 04 March 1987 and 09 March
1987 (Exhibits "7" and "8"), informed defendants that said company was appointed
attorney-in-fact for the administration of the leased premises and to collect rentals
due thereon.
9. Key Management Corp., in another letter (Exh. "9") dated 12 March 1987
advised Mr. Alpas that they were unilaterally terminating the lease effective 18 April
1987.
10. Mr. Alpas, through his lawyer answered Key Management Corp., in a letter
dated March 17, 1987, advising the latter that the lease agreement had already
been renewed for another term of ten (10) years from 16 March 1986 (Exh. "10"),
tendered payment of the sum of Ten Thousand Six Hundred Eighty-Two & 50/100
Pesos (P10,682.50) covering balance of the annual rental from March 16, 1986 to
March 15, 1988, including 12% interest per annum on rental in arrears.
11. On April 2, 1987, Key Management Corp., received the letter together with Mr.
Alpas' Statement of Account, Check Vouchers and Check No. 188395 for
P10,682.50 (Exhibit "11", "12", "13" and "14", respectively).
12. In a letter dated 20 April 1, 1987, (Exh. "15") Key Management Corporation
acknowledged receipt of P10,682.50, but with notice of its application.
13. In a letter dated 08 May 1987 Atty. Jose J. Benemerito of Key Management
Corporation reiterated the demand to pay and to vacate.
14. Defendants expressed strong exception and objection to the aforesaid lateral
application of payment of their remittance of P10,682.50 by Key Management
Corporation in its letter dated May 14, 1987 (Exhibit "16", "16-A" and "16-B").
 15. In another letter dated May 14, 1987 addressed to Atty. Jose J. Benemerito,
Atty. Ismael Andres, defendants' counsel, reiterated his stand on the matter of
payment made by the defendants of the Pl0,682.50 as rental up to March 15, 1988,
including 12% interest per annum on rental in arrears and that the contract of lease
between the plaintiff and defendants had already been renewed for another ten
(10) years from 15 March 1986 (Exhibit "8", "18-A", and "18-B").1
On August 10, 1987, petitioners filed a complaint for ejectment in the Metropolitan Trial
Court of Mandaluyong, Metro Manila against private respondents for refusal of the latter to
agree to an increased rental of P2,000.00 month for renewal of the lease. On April 14, 1988,
the trial court rendered a decision dismissing the complaint with costs de officio.
Petitioners appealed to the Regional Trial Court (RTC) of Pasig, Metro Manila, wherein on
October 23, 1989, a decision was promulgated setting aside the appealed decision, the
dispositive part of which reads
WHEREFORE, finding the instant petition to be well-taken, the Decision dated April
14, 1989, is set aside and a new one is entered, to wit:
Defendants/appellees are ordered to vacate the premises and to pay the rentals for
its use at P5,500.00 the period from March 15, 1986 to March 17, 1987 and the
amount of P2,000.00 for every month thereafter until defendants/appellees shall
have rendered the premises to plaintiffs/appellants.
No pronouncement as to costs.
SO ORDERED.2
A motion for reconsideration filed by private respondents was denied in an order dated
February 21, 1990. Private respondents then filed a petition for review with the Court of
Appeals. On August 31, 1990, the appellate court rendered a decision setting aside the
decision of the RTC and reinstating the decision rendered by the inferior court.
Hence, this petition for review where the issues raised are as follows
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
SETTING ASIDE THE DECISION OF THE REGIONAL TRIAL COURT DATED
OCTOBER 23, 1989.
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRIEVIOUSLY
ERRED IN REINSTATING IN TOTO THE DECISION OF THE TRIAL COURT
DATED APRIL 14, 1989 WHICH ORDERED THE DISMISSAL OF THE
COMPLAINT FOR BEING PREMATURE AND FOR LACK OF CAUSE OF
ACTION.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE PERIOD OF THE IMPLIED NEW LEASE, ASSUMING
ARGUENDO THAT ONE WAS CREATED, IS THE SAME AS THE ORIGINAL
TEN (10) YEAR PERIOD AS PROVIDED IN THE CONTRACT OF LEASE (EXH.
"A" OR "l") INSTEAD OF ON A YEAR-TO-YEAR BASIS AS PROVIDED IN ART.
1670 IN RELATION TO ARTICLE 1687, NEW CIVIL COVE.3
Nothing is more settled than the rule that the terms of a written contract are binding on the
parties thereto.1wphi1 In the interpretation of the provisions of a written contract, the courts
should follow the literal meaning of the stipulation. Otherwise, the evident intention of the
parties must prevail.4
A reading of the lease agreement shows that it is for a term of ten (10) years and that the
lease shall be renewable for another term of 10 years upon mutual agreement of the
parties.5 The agreed rental is P5,000.00 per annum with the escalation clause that the rental
shall be increased by 10% at the end of each five-year period counted from the effectivity of
the lease agreement.6 After the 10-year term and during the renewal period, the lessee
may, at his/their own option and discretion, terminate the lease, after giving the lessors a
previous written notice in advance, at least 180 days from the effective date of
termination.7 Upon termination of the lease after the first 10 years, all improvements which
are permanent in nature that may have been constructed by the lessee on the leased
properties, shall become properties of the lessors, their heirs or assigns, without any further
obligation to reimburse the lessees. The lessee has the priority to purchase the property if
the lessors decide to sell said property.8
Before the expiration of the 10 year term of the lease, private respondents manifested their
desire to renew the lease when they sent petitioners' representative a prepared lease
agreement already signed by them but it was never signed nor returned by petitioners.
Nevertheless, on May 31, 1986, AGRA & Co., Inc., as collection agent of petitioners
collected from private respondents the sum of P 1,800.00 as partial payment for the annual
rental covering March 15, 1986 (the expiry date of the first term of 10 years) to March 15,
1987.9 Key Management Corporation which was appointed by petitioners as attorney-in-fact
for the administration of the leased premises, advised private respondent Meliton Alpas in a
letter dated March 12, 1987 that the lease agreement was terminated effective April 18,
1987. Said respondent, through counsel, replied in a letter dated March 17, 1987 addressed
to Key Management Corporation that the lease agreement had already been renewed for
another term of ten (10) years from March 16, 1986 and tendered payment of the sum of
P10,682.00 covering the balance of the annual rental from March 16, 1986 to March 15,
1988 including 12% interest per annum on rentals in arrears. 10 In a letter dated April 20,
1987, Key Management Corporation acknowledged receipt of P10,682.50, but with notice of
its application to accrued rentals at P2,000.00 a month leaving an outstanding balance of
P13,900.00 as of April 15,1987.11
In a letter of May 8, 1987, Atty. Jose J. Benemerito of Key Management Corporation
reiterated the demand that private respondents pay the accrued rentals and vacate the
premises. On May 14,1987, private respondents objected in writing to the aforesaid
application of payment of their remittance of P10,682.50 by Key Management
Corporation.12 In another letter of same date addressed to one Atty. Benemerito private
respondents reiterated said objection and stated that the lease had already been renewed
for another 10 years.
From the foregoing set of facts, it cannot be said that the lease agreement had been
effectively renewed for another 10 years.1wphi1 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 if the rentals are increased to P2,000.00 monthly. 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 so provides for this
situation.
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 articles 1682 and 1687. The other terms of the original contract shall
be revived.
There is thus an implied renewal of the lease from year to year. The extension of the lease
for one year from March 16, 1986 to March 15, 1987 shall be at the agreed monthly rental in
the contract of P6,150.00 considering the escalation clause of 10% after every five (5)
years. However, from March 16, 1987, the rate of monthly rental should be P2,000.00 as
demanded by petitioners until private respondents vacate the premises.
WHEREFORE, the petition is hereby GRANTED. The questioned decision of the Court of
Appeals dated August 31, 1990 is REVERSED and SET ASIDE, and the decision of the
Regional Trial Court dated October 23, 1989 is hereby REINSTATED and AFFIRMED with
the above modification as to rental, with costs against private respondents.
SO ORDERED.
G.R. No. L-28367 November 29, 1971
PEDRO PAMINTUAN and RUPERTO D. TAN, petitioners,
vs.
COURT OF APPEALS, LORENTE O. YARISANTOS and LOURDES O.
YARISANTOS respondents.
Rudolfo L. Gonzales for petitioners.
Cesar R. Canonizado for private respondents.
FERNANDO, J.:
The question before respondent Court of Appeals, as before us, is the right of private
respondents, the lessors Llorente O. Yarisantos and Lourdes O. Yarisantos, to rescind a
contract of lease for nonpayment of rentals on time. The facts as found by respondent Court
left no doubt that there was indeed such a failure to do so on the part of petitioners, Ruperto
Tan and Pedro Pamintuan, respectively the lessees and sublessees Article 1659 of the Civil
Code, which grants the right to the lessor in the event of the failure on the part of the lessee
to comply with his obligations, is thus applicable.1 So it was held by respondent Court of
Appeals. We cannot do otherwise. We affirm.
The complaint for rescission was filed by private respondents who succeeded to the rights
of the previous lessor, Patrocinio A. Vda. de Gaerlan from which the disputed two lots
situated in Sampaloc, Manila were, purchased. The lease contract in favor of private
petitioners Tan and Pamintuan 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 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.2 The complaint for rescission filed by private
respondents as plaintiffs against petitioners as defendants on November 12, 1959 alleged
that with respect to the first lot, defendant, now petitioner, Ruperto Tan, was in arrears for
the period of twelve months and, with respect to the second lot, for a period of eight months.
The judgment was in favor of private respondents as plaintiffs, the contract of lease being
rescinded by virtue of the above Civil Code provision.
An appeal was then taken to respondent Court of Appeals. It considered as "the one and
only issue" whether defendants, now 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, now private respondents. If they had not vioIated said provision, as claimed by
them in their answer to said complaint, then private respondents have no right to ask for the
rescission or annulment of the said contract of lease.3
This is how respondent Court resolved the issue: "While claiming to have committed no
such violations, [petitioners] nevertheless admit 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
beginning the month of October, 1958. On the contrary, they impliedly admitted in their
pleadings and they do now formally admit here, no such monthly payments were ever made'
... . With [their] above admission that 'no such monthly payments were ever made' by them
to [private respondents] it stands clear that they violated the aforequoted provision of
paragraph 2 of the contract of lease 'That the agreed monthly rental of [Fifteen Pesos]
(P15.00), Philippine Currency, payable promptly at the end of every month for each lot or
Thirty Pesos (P30.00), Philippine Currency for the two lots, shall be maintained, ... .' [So]
clearly, said violation of lessees' ... obligation 'to pay the price of the lease according to the
terms stipulated' (Article 1657 of the New Civil Code), entitles [private respondents] to
rescind said contract of lease under Article 1659 of the same 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
From the decision of respondent Court of Appeals of October 30, 1967 affirming the
judgment of the lower court, a petition for review was filed with this Tribunal. A careful
perusal of the records of the case and the legal grounds in support of this petition yields, the
conclusion that no error of law could be imputed to respondent Court.
1. Much is made in the third error assigned of private respondents being bereft of the right to
ask for rescission in view of their refusal to recognize the existence of the lease contract.
Such an argument was raised and rejected by respondent Court of Appeals in these words:
"Of course, we do not overlook' ... that the defense of the appellants (against such failure to
pay every months) is that the appellees as early as May, 1958, refused to recognize the
existence and/or binding effect of the lease contract, Exh. A and the appellees maintained
this judicial stand until final decision was had in the ejectment case, Civil Case No. 63700,
with the Municipal Court of Manila in December, 1959 or a month after they filed their
complaint in these proceedings.' ... Refusal on plaintiffs' part to recognize the existence
and/or binding effect of the said lease contract Exhibit A is only like saying that the latter
would not accept payment of rentals thereunder. In such a situation, defendants' remedy is
not to violate their own obligation under Exhibit A but to make tender of payment of such
rentals and, if refused, to make consignation thereof in court. ... .'" 5
Nor is this all that was said by respondent Court Appeals on the matter. Thus: "Defendants,
however take exception to the said remedy by rescission, contending that there is
paragraph 3 of the said lease contract providing 'That failure on the part of the [lessee] to
pay rentals for six (6) consecutive months shall automatically annul this contract.'
Defendants' argument at page 20 of their brief runs thus: 'What good is there to grant the
lessees a six-month period of grace if the lessor can rescind the lease contract anyway, with
but a month's failure pay the same rentals?' The aforequoted argument was neatly
answered by the lower court as follows: 'The right to rescind the contract pursuant to Article
1659 of the Code is different from the automatic annulment of same contract in accordance
with the provision of paragraph 3 thereof. They arise from different cases and are based on
different grounds. In making deposit rentals at six-month intervals, the defendants prevent
automatic cancellation of the contract but did not depress the owner to ask for the rescission
of the contract failure of the lessee to pay the stipulated rentals promptly at the end of every
month. It was never contemplated that the rentals were to be payable every six months,
otherwise, there would have been no necessity for the stipulation in paragraph 2 of the
contract. Indeed, the intention that the lessee should pay rentals monthly is emphasized by
the provision that such rentals should be paid 'promptly at the end of every month' ... ."6
2. It was likewise assigned as the second error that in view of a previous favorable decision
by the Court of First Instance of Manila of a consignation case filed by private petitioner Tan
against private respondents to compel the latter to accept the rentals at the rate of P15.00
monthly a well as another decision dismissing an ejectment suit by private respondents
against such petitioner, the principle of res adjudicata would apply. This point was, raised
and decided adversely against petitioner by respondent Court of Appeals thus: "Another
contention of defendants that the consignation and ejectment cases elsewhere referred to
constitute res adjudicata or are a bar to the present action is also without merit because the
subject-matter and causes of action in the said cases are distinct from those in the instant
case."7 Such a defense was thus unavailing. It did not suffice to preclude the operation of
Article 1659. An independent and separate cause of action had, as correctly stated by
respondent Court, already come into being.
3. It would thus appear clear that the first error assigned to the effect that the contract of
lease could not be rescinded is devoid of merit. Article 1659 speaks in categorical language.
Private respondents, as the aggrieved parties, had the right to ask for rescission, there
being a failure on the part of petitioners to comply with their obligations as lessee and
sublessee respectively. With the lessors having decided to avail themselves of such a right
under the law, no court can validly stand in the way of the enforcement thereof. That was
what the lower court presided by the Honorable Judge Conrado Vasquez, and respondent
Court of Appeals did. To impute what was done by them as error would be to disregard what
the law so plainly commands.
An excerpt from an opinion in Malicsi v. Carpizo,8 penned by Justice Barrera, is relevant.
Thus: "And, Article 1659 of the same Code expressly provides, among others, that if the
lessee should not comply with his obligation of paying the price (rental of the lease
according to the terms stipulated), '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'. In the instant case, appellant failed and refused to pay the monthly stipulated rental
of the property subject matter of the aforementioned lease contract for the months of
January and February, 1958. Consequently, appellee had the right under said provision of
the Civil Code to bring, as he did, the present action for rescission of said Contract of Lease,
and the trial court correctly declared the rescission thereof. Appellant claims that she had
not defaulted in the payment of said rental as no demand to make payment was made on
her by appellee. This is a question of fact which can not be raised here and the finding of
the lower court to this effect is binding on us.'"9
That is all that need be said as to this petition for the review of the decision of respondent
Court of Appeals complained of, the last error assigned being obviously untenable, as no
recovery would lie against private respondents and in favor of petitioners on their counter-
claim.
WHEREFORE, the decision of respondent Court of October 30, 1967 is affirmed. Costs
against petitioners.
Concepcion, C.J., Makalintal, Zaldivar, Castro, Villamor and Makasiar, JJ., concur.
Reyes, J.B.L. and Barredo, JJ., concur in the result.
Separate Opinions
TEEHANKEE, J., concurring:
I concur. Failure on the part of the lessee to pay promptly at the end of every month the
stipulated monthly rental constituted a violation of the obligation imposed upon him by
Article 1657, Civil Code. The lessor is therefore entitled under Article 1659, Civil Code, to
"ask for the rescission of the contract and indemnification for damages" and under Article
1673, Civil Code, to judicially eject the lessee for "lack of payment of the price stipulated."
The special stipulation between the parties "that failure on the part of the [lessee] to pay the
rentals for six (6) consecutive months shall automatically annul this contract" is not
incompatible with the lessor's above right to rescind the lease or to judicially eject the lessee
for nonpayment of the stipulated monthly rental at the and of the month, subject to such
period of grace as may be granted by the ejectment court.
Under the special stipulation, the parties obviously intended and contracted that non-
payment of rentals for six consecutive months was such a serious breach as to
"automatically annul this contract." They may have even intended such automatic
annulment literally from a layman's viewpoint, in the sense that resort to court action would
not be necessary, although in reality the lessee may in bad faith refuse to honor and comply
therewith.
The appellate court therefore correctly ruled that the contractual stipulations covered
different situations, each enforceable as the cause should arise in consonance with the
rule of construction that contracts should read as a whole and their specific provisions
harmonized and given effect accordingly.
Separate Opinions
TEEHANKEE, J., concurring:
I concur. Failure on the part of the lessee to pay promptly at the end of every month the
stipulated monthly rental constituted a violation of the obligation imposed upon him by
Article 1657, Civil Code. The lessor is therefore entitled under Article 1659, Civil Code, to
"ask for the rescission of the contract and indemnification for damages" and under Article
1673, Civil Code, to judicially eject the lessee for "lack of payment of the price stipulated."
The special stipulation between the parties "that failure on the part of the [lessee] to pay the
rentals for six (6) consecutive months shall automatically annul this contract" is not
incompatible with the lessor's above right to rescind the lease or to judicially eject the lessee
for nonpayment of the stipulated monthly rental at the and of the month, subject to such
period of grace as may be granted by the ejectment court.
Under the special stipulation, the parties obviously intended and contracted that non-
payment of rentals for six consecutive months was such a serious breach as to
"automatically annul this contract." They may have even intended such automatic
annulment literally from a layman's viewpoint, in the sense that resort to court action would
not be necessary, although in reality the lessee may in bad faith refuse to honor and comply
therewith.
The appellate court therefore correctly ruled that the contractual stipulations covered
different situations, each enforceable as the cause should arise in consonance with the
rule of construction that contracts should read as a whole and their specific provisions
harmonized and given effect accordingly
 [G.R. No. L-8221. January 31, 1956.]
EDUARDO MANLAPAT, Plaintiff-Appellant, vs. SIMEON SALAZAR, Defendant-
Appellee.
DECISION
REYES, A., J.:
This is an appeal from a judgment of the Court of First Instance of Bulacan,
dismissing Plaintiffs action for the recovery of a fishpond through annulment of certain
contracts of lease and sublease. The appeal has been certified to this court on the ground
that it involves only questions of law.
The material facts are not in dispute. The fishpond in question formerly belonged to three
co-owners who had taken turns in leasing it to the same person, Bernardo Enriquez. The
last lease was signed in 1931 and was to last until June 1, 1967. After the death of
Bernardo Enriquez, his widow, Esperanza Guillen, subleased the fishpond, first, to Dr.
Macario Cuerpo Cruz and thereafter to the present Defendant Simeon Salazar, the
sublease to the latter to commence from May 31, 1947 and last until May 31, 1967. In 1952,
with the co-owners of the fishpond already dead, their sole heir, Plaintiff Eduardo Manlapat,
brought the present action in the Court of First Instance of Bulacan against the subleasee
Simeon Salazar to recover possession of the fishpond, alleging that the sublease to
the Defendant, as well as the leases executed by Plaintiffs predecessors in interest, was
null and void. But the court decided that those contracts were valid and dismissed Plaintiffs
action with costs. Hence, the present appeal, which, however, involves only the sublease to
the Appellee, the Appellant contending that the lower court erred in declaring the same valid
and binding.
The Appellant impugns the validity of the sublease to the Appellee on the theory that it is not
really a sublease, which, under both the old and the new Civil Code, would be valid even
though entered into without the consent of the lessors since there was no prohibition against
it in the contract of lease but a veritable assignment of lease, which, in Appellants
opinion, is void for want of such consent.
The essential difference between an assignment of lease and a mere sublease is given by
Manresa thus:chanroblesvirtuallawlibrary
cralaw En la cesion, al arrendatario transmite en absoluto su derecho, su personalidad
desaparece, quedan solamente en la relacion juridica dos personas, el arrendador y el
cesionario, que se convierte en arrendatario. En el subarriendo no desaparece personalidad
alguna; chan roblesvirtualawlibraryhay dos arriendos y dos relaciones juridicas diferentes,
aunque intimamente ligadas y relacionadas la una con la otra. (10 Manresa 1950 ed., p.
510.)
To the same effect is the following from Valverde:chanroblesvirtuallawlibrary
El subarriendo supone un nuevo arrendamiento, convirtiendo al arrendatario en
arrendador, pero sin que el subarrendador se desligue por completo del arrendamiento
primitivo; chan roblesvirtualawlibrarymientras que en la cesion del arrendamiento, el
cesionario se coloca en luger del cedente, continuando el arrendamiento en las mismas
condiciones y quedando el arrendatario, en virtud de la cesion de su derecho,
completamente desligado de responsabilidad con el arrendador. Estos dos contratos se
parecen:chanroblesvirtuallawlibrary el primero al arrendamiento, y el segundo a la venta.
(Valverde, Tratado de Derecho Civil Espaol, Tomo 3, pag. 474.)
To determine then whether a given contract constitutes an assignment of lease and not a
mere sublease, the test is whether the lessee has by said contract made an absolute
transfer of his interest as such lessee, thus dissociating himself from the original contract of
lease, so that, as Manresa would say, his personality disappears and there remain only in
the juridical relation two persons, the lessor and the assignee, who is converted into a
lessee.
The same test is applied, at common law, where the transfer of a leasehold by the lessee is
deemed an assignment of lease only if he cedes his entire interest in the estate; chan
roblesvirtualawlibrarywhereas, if he retains a reversionary interest, however small, the
transfer is deemed a mere sublease. (32 Am. Jur. 290; chan roblesvirtualawlibrary51 C.J. S.
553.) So, if the lessee underlets for a period less than the entire term or reserves for himself
a reversionary interest in the term, the transaction is a subletting. (51 C.J. S. 555.)
With the above distinction in mind, it seems obvious from an examination of the terms of the
document executed by Esperanza Guillen in favor of the Appellee identified in evidence
as Exhibit 5 that the said document is one of sublease. In the first place, the original
lease is, as already stated, to last until June 1, 1967. On the other hand, the sublease is to
last only until May 31 of that year. The sublease is thus for a shorter period than the original
lease. A reservation of even so short a period as the last day of the term is enough to make
the transfer a sublease. (35 C.J. 990; chan roblesvirtualawlibraryDavis vs. Morris, 36 NY
569.) Indeed, it is held that the mere fact that the lessor is to receive a surrender of the
premises on the last day of the term prevents the transfer from being an assignment.
(Murdock et al. vs. Fishel et al., 121 NYS 624; chan roblesvirtualawlibrary35 C.J. 989.) It is
true that the sublessor states in Exhibit 5 that her possession under the original lease
would last up to May 31, 1967 (tatagal pa hanggang sa Mayo 31, 1967), and from
this Appellant argues that in fixing the term of the sublease so that it would expire on May
31, 1967, the sublessor must have intended to transfer her entire interest in the lease. The
argument, however, is based upon mere conjecture. Actually, the sublessor has not
transferred her interest for the entire period of the original lease, and this may well be due to
a desire to repossess the fishpond earlier so that she could prepare it for delivery to the
owner.
The terms of the sublease Exhibit 5, also furnish further proof that the lessee, now
sublessor, has not dissociated herself from the original lease and that, as Manresa would
say, her personality has not disappeared. Condition No. 2, which binds her to respect the
sublease and to pay damages should she again sublease the fishpond to another person, is
inconsistent with the idea that she had entirely given up her interest in the estate. Equally
inconsistent with this idea are condition No. 3, in which the sublessor binds herself to pay
the land taxes on the fishpond and such other taxes as may be exacted by the
Government; chan roblesvirtualawlibrarycondition No. 4, which forbids the cutting of any
tree in the fishpond without the sublessors written consent; chan roblesvirtualawlibraryand
lastly, condition No. 5, which requires the sublessee to return the fishpond upon the
expiration of the sublease in as good a condition as when he took possession of it. With
regard to the condition last named, Appellantobserves that it does not specify that it is to the
sublessor that the fishpond is to be returned by the sublessee. But how could the sublessor
determine the condition of the fishpond if the same were not to be returned to her ?
Moreover, as the contract is between sublessor and sublessee, the return of the property
object of the contract would naturally, in the absence of a different stipulation, have to be
made to the sublessor.
Notice may also be taken of the fact that the sublessor has, in her contract with the
sublessee, used the Tagalog word pabubuwisan (will lease). She
says:chanroblesvirtuallawlibrary cralaw aking isasalin, ililipat at pabubuwisan ang aking
posicion at pamumuwisan sa nabanguit na palaisdaan cralaw This clause clearly means
that the lessee is transferring possession of the fishpond under lease to her and renting it
(i.e. subleasing it) to the transferee.
It being clear that the contract Exhibit 5 is a sublease, the trial court did not err in
considering it as such and in declaring it valid, there being nothing against it in the original
contract of lease.
Having arrived at this conclusion, we deem it unnecessary to go into the question of whether
the contract embodied in Exhibit 5 would be void or not if considered as an assignment of
lease.
Wherefore, the judgment appealed from is affirmed, with costs against Appellant.
G.R. No. L-54753 June 24, 1983
MARIETTA E. DAKUDAO, ANTONIETTA E. QUINTOS, ELSA E. ALMEDA, JOSE R.
EBRO, JR., and LUCIA E. PELAYO, petitioners,
vs.
HON. JUDGE FRANCISCO Z. CONSOLACION, FRANCISCO ANG SINGCO, FEDERICO
LAURECIO and CARMEN LAURECIO, respondents.
Jose R Ebro, Jr. for petitioners.
Delante & Associates for respondents.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari with pre mandatory injunction seeking to reverse the
orders of the respondent Court of First Instance of Davao dated June 10, 1980 and July 18,
1980. The petitioners have come to this Court on pure questions of law.
There is no dispute over the basic facts of this case which are summarized by the
respondent court as follows:
Plaintiffs are co-owners of a parcel of land Identified as Lot 202-F-13
embraced on transfer Certificate of Title No. T-34254 of the Registry of
Deeds of Davao City. On this land stands the house of defendant
Francisco Ang Singco who had a verbal lease contract with herein
plaintiffs. The monthly agreed rental is P25.00.
On July of 1977, without the knowledge and consent of plaintiffs,
defendant Ang Singco sold his house to his CO-defendants, the
Laurecios. When plaintiff Marietta Dakudao visited the premises in
question, she was told of the transaction that transpired between Ang
Singco and the Laurecios. Ang Singco left the premises in July or August
of 1977 knowing that he was in arrears in his rentals for one year and
seven months.
Since the house is at present occupied by the Laurecios, plaintiffs through
Marietta Dakudao demanded that they vacate the premises and for the
payment of the use and occupation of the same at P100.00 a month. The
Laurecios were willing to pay P50.00 a month and for failure to reach an
agreement for the rental of the premises, plaintiffs filed this suit. Having
received an adverse judgment, applicants elevated the same with the
assignment of errors...
In its decision dated July 18, 1979, the City Court of Davao City, Branch II dismissed the
case for unlawful detainer against the Laurecios. With respect to defendant Ang Singco, the
Court ruled that the action against him was converted into a simple one for collection of
back rentals since he was no longer in possession of the land leased to him. (Decision of
City Court, Annex "C", Rollo, p. 58)
As regards the respondents Federico and Carmen Laurecio, the City Court held:
1. That there has never been a contract of lease, expressed or implied,
between the plaintiff and the defendant Laurecios as regards that portion
of land occupied by the house sold to them by the original lessee
Francisco Ang Singco. This is the contention and theory of the plaintiffs.
The defendants Laurecios cannot be considered as the lawful successor-
in- interest of the original lessee of the land occupied by the house sold.
(Art. 1649 Civil Code);
2. That the demand of the plaintiffs upon the defendant Laurecios was to
vacate the premises occupied by the house they purchased from the
defendant Ang Singco and to pay the reasonable compensation for the
use of said premises, not back rentals.
With the foregoing facts as background, are the plaintiffs entitled to the
remedy of unlawful detainer as against the defendants? The Court does
not believe so because the essence of the action for unlawful detainer is
the existence of a contract, expressed or implied, between the plaintiff
and the defendant. ... (Decision of the City Court of Davao, Annex "C",
Rollo, p. 57).
Having received an adverse judgment, the petitioners elevated the case to the Court of First
Instance of Davao, Branch II. (Annex "H", Rollo, P. 69)
On January 15, 1980, the CFI of Davao modified the abovementioned decision of the City
Court of Davao City. The Court held
This Court does not agree with the foregoing findings. When defendant
Ang Singco sold his house to his co-defendants without the consent and
knowledge of herein plaintiffs, there was stealth employed and this
allegation is incorporated in the pleadings as well as in the trial of this
case. However, an implied contract of lease was created when plaintiffs
demanded of the Laurecios to pay rental over the parcel of land as
compensation for the occupation thereof hence an unlawful detainer case
can be filed against the Laurecios.
On February 14, 1980, the private respondents Med a motion for reconsideration of the
decision of the CFI of Davao on the following grounds:
I THAT THE EVIDENCE IS INSUFFICIENT TO JUSTIFY THE
DECISION; and
II THAT THE DECISION IS AGAINST THE LAW AND/OR
JURISPRUDENCE.
In its order dated June 10, 1980, the CFI of Davao City reconsidered and set aside its
decision and entered a new one affirming in toto the appealed decision of the City Court.
According to the amended decision:
xxx xxx xxx
The Court, after a thorough consideration of the pleadings filed, finds that
it committed an error in modifying the decision of the court a quo. The fact
of lease and the expiration of its are the essential elements of an unlawful
detainer case. Since no contract had been executed, either express or
implied, an action for unlawful detainer win not lie against the Laurecios.
xxx xxx xxx
The petitioners moved for the reconsideration of the amended ruling. However, the CFI of
Davao, in its order dated July 18, 1980, denied the motion for reconsideration of the
plaintiffs-appellees for lack of merit.
The plaintiffs-appellees, therefore, filed this instant petition for review on certiorari raising
the following arguments:
1. That although there is no contract express or implied, between plaintiffs
and defendants Laurecios, an action for unlawful detainer nevertheless
lies against said respondents.
2. That respondents Laurecios who occupy the land of petitioners at the
latter's tolerance, without any contract between them are necessarily
bound by an implied promise that they will vacate upon demand, failing
which a summary action for unlawful detainer is the proper remedy
against them.
3. That even assuming for the sake of argument that an action for
unlawful detainer win not lie against respondents Laurecios, petitioners
have nevertheless alleged and proven strategy and stealth on the part of
said respondents regarding their entry into, and occupation of, the leased
premises sufficient to make out an action for forcible entry against them.
This is a good example of how persons who have failed to adduce any legal grounds for
their continued stay on property "I to another have nonetheless managed to stave off
eviction for more than four years through the improper use of procedural technicalities and
reliance on delays caused by heavy caseloads of courts of justice.
In its June 18, 1979 decision, the City Court of Davao City admitted that the plaintiffs had a
right to recover possession of the land involved in the litigation but "unfortunately" for them
their cause of action did not fit within an unlawful detainer case. Neither could it be a forcible
entry case, according to the judge, because the plaintiffs failed to allege in the pleadings or
prove with evidence the fact that the defendants occupied the land through stealth and
strategy
The primary argument of the respondents Laurecio in this petition is that they are not
unlawfully withholding possession from the petitioners after the expiration or termination of
the right to hold possession by virtue of any contract because there never was any contract
express or implied between them and the petitioners.
The private respondents further claim that they cannot be considered privies or successors-
in-interest of the former lessee, Francisco Ang Singco, because Article 1649 of the Civil
Code provides that "the lessee cannot assign the lease without the consent of the lessor,
unless there is a stipulation to the contrary." The respondents fail to state by what right they
are occupying the land. If they have no contract, express or implied with the owners and
they have no claim as successors-in-interest of the former lessee, they become mere
usurpers or squatters through their own admission. Article 1649 of the Civil Code is intended
to protect the owner of the leased property. It was never intended to permit one who claims
no right to the premises to avoid ejectment by the dubious allegation that his occupation is
not lawful as the Civil Code prohibits it.
As a matter of fact, the respondents averred in their answer filed with the City Court of
Davao City that the plaintiffs, now petitioners, gave their consent when the Laurecios
purchased the house from Ang Singco "otherwise the defendants Laurecio could have
desisted from buying the subject house." The defendants averred that the Laurecios and the
petitioners agreed to maintain the P25.00 monthly rentals at the time of the sale in July,
1977 but a year later, the lot owners suddenly raised the rent to P50.00 monthly and that "if
defendants Laurecio have failed to pay their rental, the same is due to plaintiffs'
unreasonable and malicious refusal to receive the payments." The present claim of the
respondents on the absence of any contract or agreement is due to their taking advantage
of the ruling of the respondent court that "since no contract had been executed, either
express or implied, an action for unlawful detainer will not lie against the Laurecios." It was
not an original defense.
The City Court found the averments of the private respondents in their answer as contrary to
the evidence. The facts are:
It is established by the evidence that the plaintiffs have never consented
or ratified the sale of the house in question by the defendant Ang Singco
to the Laurecios. There has never been any definite agreement between
the plaintiff and the Laurecios as to the amount of rentals the latter were
going to pay. In fact the Laurecios have not paid any amount by way of
rentals to the plaintiff except that which they deposited in Court during the
pendency of this case on February 2, 1979 in the amount of P450.00 for
the period from August, 1977 to January, 1979 (Exhibit '3' and Exhibit '4').
Since there was no contract between the lot owners and the Laurecios, the latter's
occupation of the land is only as successors of Ang Singco from whom they purchased the
house built on the lot. If Article 1649 had been followed and the consent of the owners to the
sale secured, the Laurecios would be more than mere successors-in-interest. They would
have become the new lessees. The unlawful detainer case was proper.
If we view the failure of the petitioners to file an ejectment case from February, 1978 when
they first learned of the respondents presence on their land up to June 1, 1978 when the
letter demanding that they vacate the lot was sent, as tolerance or permission by the
owners, the unlawful detainer case is still proper.
We held in the case of Vda. de Cachuela v. Francisco (.98 SCRA 172) citing the case
of Calubayan v. Pascual (21 SCRA 146, 148) that a person who occupies the land of
another at the latter's tolerance or permission, without any contract between them, is
necessarily bound by an implied promise that he will vacate upon demand, failing which a
summary action for ejectment is the proper remedy against him. The status of the defendant
is analogous to that of a lessee or tenant whose term of lease has expired but whose
occupancy continued by tolerance of the owner. In such a case, the unlawful deprivation or
withholding of possession is to be counted from the date of the demand to vacate. Likewise
in the case of Yu v. de Lara (6 SCRA 785), we ruled that the proper remedy against a
person who occupies the land of another, who has no contract with the owner, and whose
possession is merely tolerated, but who refuses to vacate despite demand, is the summary
action for ejectment.
The respondents Laurecios argue that the tolerance by the petitioners must be present right
from the start of the possession sought to be recovered, to categorize a cause of action as
one of unlawful detainer, not of forcible entry, citing the cases of Sarona, et al vs. Villegas,
et al. (22 SCRA 1257) and Monteblanco v. Hinigaran Sugar Plantation (63 Phil. 797, 802,
803). We fail to see what advantage to the administration of justice would be served if we
allow the private respondents to argue that, perhaps, they should be prosecuted for forcible
entry and not unlawful detainer. In their opposition dated July 9, 1979, the private
respondents alleged as ground for the opposition:
THAT PLAINTIFFS' ALLEGATIONS IN THEIR COMPLAINT AND THE
EVIDENCE THEY ADDUCED DO NOT PROVE ANY CAUSE OF
ACTION FOR FORCIBLE ENTRY AGAINST THE DEFENDANTS
LAURECIOS.
Moreover, there is no conflict between the cases abovementioned and the case of Cachuela
v. Francisco. As far as the petitioners are concerned, it may rightly be said that any
supposed tolerance of the occupation by the respondents Laurecios was from February,
1978, when they first discovered the respondents to be in possession of the premises. To
petitioners, this was the start of the respondent Laurecios' occupation since the latter's
actual entry into the premises in July or August, 1977 had been concealed from the
petitioners.
Considering the foregoing, we see no need to discuss the third "question of law" raised in
the petition.
Equitable considerations also dictate that procedural technicalities, even if valid which they
are not, should not be allowed to stand in the way of substantial justice. The certification
from the Clerk of Court of the City Court of Davao shows that no deposits for rentals have
been made from February, 1980 up to the date of the certification on March 9, 1982. The
certification of the Acting Clerk of Court of the Court of First Instance of Davao shows that
no deposits for rentals in this case are being made in that court.
WHEREFORE, the judgment of the respondent court is hereby set aside. The private
respondents are ordered to vacate the disputed premises. Respondents Laurecio are
ordered to pay the amount of Fifty Pesos (P50.00) a month as reasonable compensation for
the use and occupation of the premises beginning August, 1977 until they finally vacate the
premises, minus whatever amounts may have been deposited as rentals with the court for
delivery to the petitioners and to pay P500.00 in attorney's fees. The portion of the decisions
of the City Court and the respondent court as regards Francisco Ang Singco is affirmed.
This decision is immediately executory.
SO ORDERED.
G.R. No. L-49020 February 28, 1944 necessary in order to keep it in serviceable condition for the purpose for which it was
MANUEL ERNESTO GONZALES, petitioner, intended, the parties were at liberty to stipulate the contrary; and in the instant case it is
vs. obvious that the lessors were relieved of that duty and the lessee assumed it in their stead,
VICENTE MATEO, ET AL., respondents. considering the very moderate, if not nominal, rent he was to pay, with the obligation on the
OZAETA, J.: part of the lessors to pay the real estate taxes, and the relatively big profits the lessee was
Respondents, doing business as an unregistered partnership under the name and style to realize from the operation of the cockpit, netting P30 to P40 a week and P800 on days
"Samahang Sabungang Malaya," leased to the petitioner their cockpit situated in Malolos, on pintakasi (special holidays for cockfights), according to the Court of Appeals. We cannot
Bulacan, under a written contract entered into on January 5, 1937, for the period of six years accept the interpretation urged by the petitioner, that he was not obligated to make repairs,
ending December 31, 1942, at the agreed yearly rental of P100, upon the following but only improvements, on the building. He was clearly obligated to do all that was
conditions: necessary to put the building in serviceable condition, at his own expense. Of course, any
a. Ang lahat ng kailangan na gagawin sa bahay-sabungan ay ipagagawang work done by the lessee on the building for that purpose was necessarily an improvement
lahat ni G. Ernesto Gonzales sa kanyang sariling gugol na ang samahan ay thereof; and that was the reason why in condition (b) above quoted it was stated that all
walang sinasagot. improvements shall be for the benefit of the lessors without any obligation on their part to
b. Kung makaraan na ang anim (6) na taong pagkakabuwis or pagkaupa, ang pay therefor upon the expiration of the lease.
lahat ng mejora na nailagay ni G. Gonzales ay maiiwan sa samahan na di The collapse of the building in question on the occasion of the heavily attended cockfight of
pagbabayaran nito. September 12, 1937, was not due to any hidden defect but to the fact that thru petitioner's
c. Ang bahay-sabungan at and lupang kinatitirikan nito, ay ang samahan ang negligence in making the repairs he failed to place the posts on firm, solid, and sound
magbabayad ng buwis, at ang bayad ng arrendamiento ng lupa ang samahan din foundation in spite of one of the lessors' advertence to him on the matter.
ang magbabayad. Under article 1563 of the Civil Code, "the lessee is liable for any deterioration or loss
Before using said cockpit the petitioner as lessee made some improvements thereon. He suffered by the thing leased, unless he proves that it took place without his fault." And under
placed the posts on slabs of stone, without cementing them and without using joint-pins to article 1101 of the same Code, any person guilty of negligence in the fulfillment of his
brace them up in spite of respondent Isidro Bautista's advertence thereto. obligations, or who in any manner whatsoever shall fail to comply with the terms thereof,
On September 12, 1937, a cockfight was held in said cockpit with a large attendance. The shall be liable for any damage caused thereby.
building broke down and was thereafter never used by the petitioner. The judgment appealed from, being in accordance with law, is hereby affirmed, with costs.
The respondent lessors demanded of the petitioner that he either reconstruct the cockpit or
pay them the sum of P3,000 as damages in addition to the unpaid rentals. Petitioner refused
to comply with such demand, 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. Hence this suit was brought by the
lessors against the lessee, which was sustained by the Court of First Instance of Bulacan,
by which the lessee was ordered to reconstruct the cockpit or pay to the lessors its value in
the sum of P3,000 plus the rentals for the last five years amounting to P500 and the costs.
Upon appeal to the Court of Appeals the latter modified that judgment by reducing the
damages from P3,000 to P1,000. Not contended with that reduction, and insisting on
complete absolution from any liability, the defendant lessee appealed to this Court
by certiorari.
Upon the stipulations of the contract in relation to the facts found by the Court of Appeals as
above set forth, we find no reason to disturb the conclusions of that court and reverse its
judgment. It is evident that petitioner accepted the cockpit in question from respondents 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
CEBU BIONIC BUILDERS SUPPLY, G.R. No. 154366
INC. and LYDIA SIA, On October 28, 1981, Rudy Robles executed a contract of lease in favor of petitioner Cebu
Petitioners, Present: Bionic Builders Supply, Inc. (Cebu Bionic), a domestic corporation engaged in the
construction business, as well as the sale of hardware materials. The contract pertinently
CORONA, C.J., provides:
- versus - Chairperson,
VELASCO, JR., CONTRACT OF LEASE
LEONARDO-DE CASTRO,
DEVELOPMENT BANK OF THE PERALTA,* and
PHILIPPINES, JOSE TO CHIP, PATRICIO PEREZ, JJ. KNOW ALL MEN BY THESE PRESENTS:
YAP and ROGER BALILA,
Respondents. Promulgated: This Lease Contract made and entered into, by and between:

November 17, 2010 RUDY ROBLES, JR., Filipino, of legal age, married and resident of 173
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x Maria Cristina Ext., Cebu City, hereinafter referred to as the LESSOR,

- and -
DECISION
CEBU BIONIC BUILDER SUPPLY, represented by LYDIA SIA, Filipino, of
legal age, married and with address at 240 Magallanes St., Cebu City
LEONARDO DE CASTRO, J.: hereinafter known as the LESSEE;

This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court assails the WITNESSETH:
Resolution[2] dated February 5, 2002 and the Amended Decision[3] dated July 5, 2002 of the
Court of Appeals in CA-G.R. CV No. 57216. In the Resolution dated February 5, 2002, the The LESSOR is the owner of a commercial building along Tabunok,
Court of Appeals admitted the Motion for Reconsideration [4] of herein respondents Talisay, Cebu, known as the State Theatre Building.
Development Bank of the Philippines (DBP), Jose To Chip, Patricio Yap and Roger Balila,
notwithstanding the fact that the same was filed more than six months beyond the The LESSOR agrees to lease unto the LESSEE and the LESSEE accepts
reglementary period. Said motion prayed for the reversal of the Court of Appeals the lease from the LESSOR, a portion of the ground floor thereof,
Decision[5] dated February 14, 2001, which affirmed the Decision [6] dated April 25, 1997 of consisting of one (1) unit/store space under the following terms and
the Regional Trial Court (RTC) of Cebu, Branch 8, in Civil Case No. CEB-10104 that ruled in conditions:
favor of petitioners. In the Amended Decision of July 5, 2002, the Court of Appeals reversed
its previous Decision dated February 14, 2001 and dismissed the petitioners complaint for 1. The LESSEE shall pay a monthly rental of One Thousand
lack of merit. (P1,000.00) Pesos, Philippine Currency. The rental is payable in advance
within the first five (5) days of the month, without need of demand;
The facts leading to the instant petition are as follows:
2. That the term of this agreement shall start on
On June 2, 1981, the spouses Rudy R. Robles, Jr. and Elizabeth R. Robles entered into November 1, 1981 and shall terminate on the last day of every month
a mortgage contract[7] with DBP in order to secure a loan from the said bank in the amount thereafter; provided however that this contract shall be
of P500,000.00. The properties mortgaged were a parcel of land situated in Tabunoc, automatically renewed on a month to month basis if no notice, in
Talisay, Cebu, which was then covered by Transfer Certificate of Title (TCT) No. T- 47783 writing, is sent to the other party to terminate this agreement after
of the Register of Deeds of Cebu, together with all the existing improvements, and the fifteen (15) days from receipt of said notice;
commercial building to be constructed thereon [8] (subject properties). Upon completion, the
commercial building was named the State Theatre Building. xxxx

9. Should the LESSOR decide to sell the property during
the term of this lease contract or immediately after the expiration of
the lease, the LESSEE shall have the first option to buy and shall
match offers from outside parties.[9] (Emphases ours.)
The above contract was not registered by the parties thereto with the Registry of Deeds of
Cebu.
Subsequently, the spouses Robles failed to settle their loan obligation with
DBP. The latter was, thus, prompted to effect extrajudicial foreclosure on the subject
properties.[10] On February 6, 1987, DBP was the lone bidder in the foreclosure sale and
thereby acquired ownership of the mortgaged subject properties.[11] On October 13, 1988, a
final Deed of Sale[12] was issued in favor of DBP.
Meanwhile, on June 18, 1987, DBP sent a letter to Bonifacio Sia, the husband of petitioner
Lydia Sia who was then President of Cebu Bionic, notifying the latter of DBPs acquisition of
the State Theatre Building. Said letter reads:
June 18, 1987
Mr. Bonifacio Sia
Bionic Builders Inc.
State Theatre Bldg.
Tabunok, Talisay, Cebu
Sir:
On July 7, 1987, the counsel of Bonifacio Sia replied to the above letter, to wit:
This refers to the commercial space you are occupying in the acquired
property of the Bank, formerly owned by Rudy Robles, Jr.
Please be informed that said property has been acquired through
foreclosure on February 6, 1987. Considering thereat, we require you
to remit the rental due for June 1987.
If you wish to continue on leasing the property, we request you to
come to the Bank for the execution of a Contract of Lease, the salient
conditions of which are as follows:
1. The lease will be on month to month basis, for a maximum
period of one (1) year;
2. Deposit equivalent to two (2) months rental and advance of
one (1) month rental, and the remaining amount for one
year period (equivalent to 9 months rental) shall be
secured by either surety bond, cash bond or assigned
time deposit;
3. That in case there is a better offer or if the property will be
subject of a purchase offer, within the term, the lessor is
given an option of first refusal, otherwise he has to
vacate the premises within thirty (30) days from date of
notice.
We consider, temporarily, the current monthly rental based on the
six-month receipts, which we require you to submit, until such time
when we will fix the amount accordingly.
If the contract of lease is not executed within thirty (30) days from
date hereof, it is construed that you are not interested in leasing the
premises and will vacate within the said period.
Please be guided accordingly.
Truly yours,
(SGD)LUCILO S. REVILLAS
Branch Head[13] (Emphases ours.)
July 7, 1987
Mr. Lucilo S. Revillas
Branch Head
Development Bank of the Philippines
Dear Mr. Revillas,
This has reference to your letter of 18 June 1987 which you sent to my
client, Mr. Bonifacio Sia of Cebu Bionic Builders Supply the lessee of a
commercial space of the State Theatre Bldg., located at Tabunok, Talisay,
Cebu.
 My client is amenable to the terms contained in your letter except the Item No. Description/Location Starting Price
following:
xxxx
1. In lieu of item no. 2 thereof, my client will deposit with your
bank the amount of P10,000.00, as assigned time deposit; II Commercial land, Lot No. 3681-C-3,
having an area of 396 sq. m., situated in
2. The 30 days notice you mentioned in your letter, (3), is too Tabunok, Talisay, Cebu and covered by
short. My client is requesting for at least 60 days notice. TCT No. T-65199 (DBP), including the
commercial building thereon. P1,838,100.00
I sincerely hope that you will give due course to this request.
xxxx
Thank you.
A pre-numbered Acknowledgment Receipt duly signed by at least
Truly yours, two (2) of the Committee members shall be issued to the offeror
acknowledging receipt of such offer.
(SGD) ANASTACIO T. MUNTUERTO, JR.[14]
Negotiated offers may be made in CASH or TERMS, the former
requiring a deposit of 10% and the latter 20% of the starting price,
Thereafter, on November 14, 1989, a Certificate of Time Deposit [15]
for P11,395.64 was either in the form of cash or cashiers/managers check to be
issued in the name of Bonifacio Sia and the same was allegedly remitted to DBP as enclosed in the sealed offer.
advance rental deposit.
xxxx
For reasons unclear, however, no written contract of lease was executed between DBP and
Cebu Bionic. Interested negotiated offerors are requested to see Atty. Apolinar K.
Panal, Jr., Acquired Asset in Charge (Tel. No. 9-63-25), in order to secure
In the meantime, subsequent to the acquisition of the subject properties, DBP copies of the Letter-Offer form and Negotiated Sale Rules and
offered the same for sale along with its other assets. Pursuant thereto, DBP published a Procedures.
series of invitations to bid on such properties, which were scheduled on January 19,
1989,[16] February 23, 1989,[17] April 13, 1989,[18] and November 15, 1990.[19] As no NOTE: If no offer is received during the above stated acceptance
interested bidder came forward, DBP publicized an Invitation on Negotiated Sale/Offer, the period, the properties described above shall be sold to the
relevant terms and conditions of which stated: first offeror who submits an acceptable proposal on a
First-Come-First-Served basis.
INVITATION ON NEGOTIATED SALE/OFFER
City of Cebu, Philippines, November 16, 1990.
The DEVELOPMENT BANK OF THE PHILIPPINES, Cebu Branch, will
receive SEALED NEGOTIATED OFFERS/PURCHASE PROPOSALS (SGD.) TIMOTEO P.
tendered at its Branch Office, DBP Building, Osmea Boulevard, Cebu City OLARTE
for the sale of its acquired assets mentioned hereinunder within the 15-
Branch Head[20] (Emphases
Day-Acceptance-Period starting from NOVEMBER 19, 1990 up to
ours.)
12:00 oclock noon of DECEMBER 3, 1990. Sealed offers submitted
shall be opened by the Committee on Negotiated Offers at exactly 2:00 In the morning of December 3, 1990, the last day for the acceptance of negotiated offers,
oclock in the afternoon of the last day of the acceptance period in order to petitioners submitted through their representative, Judy Garces, a letter-offer form, offering
determine the highest and/or most advantageous offer. to purchase the subject properties for P1,840,000.00. Attached to the letter-offer was a copy
of the Negotiated Sale Rules and Procedures issued by DBP and a managers check for the
amount of P184,000.00, representing 10% of the offered purchase price. This offer of
petitioners was not accepted by DBP, however, as the corresponding deposit therefor was
allegedly insufficient.
After the lapse of the above-mentioned 15-day acceptance period, petitioners did
not submit any other offer/proposal to purchase the subject properties.
On December 17, 1990, respondents To Chip, Yap and Balila presented their letter-
offer[21] to purchase the subject properties on a cash basis for P1,838,100.00. Said offer was
accompanied by a downpayment of 10% of the offered purchase price, amounting
to P183,810.00. On even date, DBP acknowledged the receipt of and accepted their
offer. On December 28, 1990, respondents To Chip, Yap and Balila paid the balance of the
purchase price and DBP issued a Deed of Sale[22] over the subject properties in their favor.
On January 11, 1991, the counsel of respondents To Chip, Yap and Balila sent a
letter[23] addressed to the proprietor of Cebu Bionic, informing the latter of the transfer of
ownership of the subject properties. Cebu Bionic was ordered to vacate the premises within
thirty (30) days from receipt of the letter and directed to pay the rentals from January 1,
1991 until the end of the said 30-day period.
The counsel of Cebu Bionic replied[24] that his client received the above letter on January
11, 1991. He stated that he has instructed Cebu Bionic to verify first the ownership of the
subject properties since it had the preferential right to purchase the same. He likewise
requested that he be furnished a copy of the deed of sale executed by DBP in favor of
respondents To Chip, Yap and Balila.
On February 15, 1991, respondent To Chip wrote a letter [25] to the counsel of Cebu Bionic,
insisting that he and his co-respondents Yap and Balila urgently needed the subject
properties to pursue their business plans. He also reiterated their demand for Cebu Bionic to
vacate the premises.
Shortly thereafter, on February 27, 1991, the counsel of respondents To Chip, Yap and
Balila sent its final demand letter[26] to Cebu Bionic, warning the latter to vacate the subject
properties within seven (7) days from receipt of the letter, otherwise, a case for ejectment
with damages will be filed against it.[27]
Despite the foregoing notice, Cebu Bionic still paid [28] to DBP, on March 22, 1991, the
amount of P5,000.00 as monthly rentals on the unit of the State Theatre Building it was
occupying for period of November 1990 to March 1991.
On April 10, 1991, petitioners filed against respondents DBP, To Chip, Yap and Balila
a complaint[29] for specific performance, cancellation of deed of sale with damages,
injunction with a prayer for the issuance of a writ of preliminary injunction.[30] The complaint
was docketed as Civil Case No. CEB-10104 in the RTC.
Petitioners alleged, inter alia, that Cebu Bionic was the lessee and occupant of a
commercial space in the State Theatre Building from October 1981 up to the time of the
filing of the complaint. During the latter part of 1990, DBP advertised for sale the State
Theatre Building and the commercial lot on which the same was situated. In the prior
invitation to bid, the bidding was scheduled on November 15, 1990; while in the next, under
the 15-day acceptance period, the submission of proposals was to be made from November
19, 1990 up to 12:00 noon of December 3, 1990. Petitioners claimed that, at about 10:00
a.m. on December 3, 1990, they duly submitted to Atty. Apolinar Panal, Jr., Chief of the
Acquired Assets of DBP, the following documents, namely:
6.1 Letter-offer form, offering to purchase the
property advertised, for the price of P1,840,000, which was higher than
the starting price of P1,838,100.00 on cash basis. x x x;
6.2 Negotiated Sale Rules and Procedures, duly signed
by plaintiff, x x x;
6.3 Managers check for the amount of P184,000
representing 10% of the deposit dated December 3, 1990 and issued by
Allied Banking Corp. in favor of the Development Bank of the Philippines.
x x x.[31] (Emphasis ours.)
Petitioners asserted that the above documents were initially accepted but later
returned. DBP allegedly advised petitioners that there was no urgent need for the same x x
x, considering that the property will necessarily be sold to [Cebu Bionic] for the reasons that
there was no other interested party and that [Cebu Bionic] was a preferred party being the
lessee and present occupant of the property subject of the lease[.] [32] Petitioners then
related that, without their knowledge, DBP sold the subject properties to respondents To
Chip, Yap and Balila. The sale was claimed to be simulated and fictitious, as DBP still
received rentals from petitioners until March 1991. By acquiring the subject properties,
petitioners contended that DBP was deemed to have assumed the contract of lease
executed between them and Rudy Robles. As such, DBP was bound by the provision of the
lease contract, which stated that:
9. Should the Lessor decide to sell the property during the term
of this lease contract or immediately after the expiration of the lease, the
Lessee shall have the first option to buy and shall match offers from
outside parties.[33]
Petitioners sought the rescission of the contract of sale between DBP and
respondents To Chip, Yap and Balila. Petitioners also prayed for the issuance of a writ of
preliminary injunction, restraining respondents To Chip, Yap and Balila from registering the
Deed of Sale in the latters favor and from undertaking the ejectment of petitioners from the
subject properties. Likewise, petitioners entreated that DBP be ordered to execute a deed of
sale covering the subject properties in their name and to pay damages and attorneys fees.
In its answer,[34] DBP denied the existence of a contract of lease between itself and
petitioners. DBP countered that the letter-offer of petitioners was actually not accepted as
their offer to purchase was on a term basis, which therefore required a 20% deposit. The
10% deposit accompanying the petitioners letter-offer was declared insufficient. DBP stated
that the letter-offer form was not completely filled out as the Term and Mode of Payment
fields were left blank. DBP then informed petitioner Lydia Sia of the inadequacy of her
offer. After ascertaining that there was no other offeror as of that time, Lydia Sia allegedly
summoned back her representative who did not leave a copy of the letter-offer and the
attached documents. DBP maintained that petitioners documents did not show that the
same were received and approved by any approving authority of the bank. The letter-offer
attached to the complaint, which indicated that the mode of payment was on a cash basis,
was allegedly not the document shown to DBP. In addition, DBP argued that there was no
assumption of the lease contract between Rudy Robles and petitioners since it acquired the
subject properties through the involuntary mode of extrajudicial foreclosure and its request
to petitioners to sign a new lease contract was simply ignored. DBP, therefore, insisted that
petitioners occupancy of the unit in the State Theatre Building was merely upon its
acquiescence. The petitioners payment of rentals on March 22, 1991 was supposedly made
in bad faith as they were made to a mere teller who had no knowledge of the sale of the
subject properties to respondents To Chip, Yap and Balila. DBP, thus, prayed for the
dismissal of the complaint and, by way of counterclaim, asked that petitioners be ordered to
pay damages and attorneys fees.
Respondents To Chip, Yap and Balila no longer filed a separate answer, adopting
instead the answer of DBP.[35]
In an Order[36] dated July 31, 1991, the RTC granted the prayer of petitioners for
the issuance of a writ of preliminary injunction.[37]
On April 25, 1997, the RTC rendered judgment in Civil Case No. CEB-10104,
finding meritorious the complaint of the petitioners. Explained the trial court:
It is a fact on record that [petitioners] complied with the requirements of
deposit and advance rental as conditions for constitution of lease between
the parties. [Petitioners] in complying with the requirements, issued a time
deposit in the amount of P11,395.64 and remitted faithfully its monthly
rentals until April, 1991, which monthly rental was no longer accepted by
the DBP.Although there was no formal written contract executed
between [respondent] DBP and the [petitioners], it is very clear that
DBP opted to continue the old and previous contract including the
terms thereon by accepting the requirements contained in paragraph
2 of its letter dated June 18, 1987. It is also a fact on record that under
the lease contract continued by the DBP on the [petitioners], it is provided
in paragraph 9 thereof that the lessee shall have the first option to buy
and shall match offers from outside parties. And yet, [respondent] DBP
never gave [petitioners] the first option to buy or to match offers
from outside parties, more specifically [respondents] To Chip, Balila
and Yap. It is also a fact on record that [respondent] DBP in its letter
dated June 18, 1987 to [petitioners] wrote in paragraph 3 thereof, that in
case there is better offer or if a property will be subject of purchase offer,
within the term, the lessee is given the option of first refusal, otherwise, he
has to vacate the premises within thirty (30) days. Yet, [respondent]
DBP never informed [petitioners] that there was an interested party
to buy the property, meaning, [respondents To Chip, Yap and Balila],
thus depriving [petitioners] of the opportunity of first refusal
promised to them in its letter dated June 18, 1987. x x x.[38] (Emphases
ours.)
As regards the offer of petitioners to purchase the subject properties from DBP, the RTC
gave more credence to the petitioners version of the facts, to wit:
It is also a fact on record that when [respondent] DBP offered the property
for negotiated sale under the 15-day acceptance period[, which] ended at
noon of December 3, 1991, [Cebu Bionic] submitted its offer, complete
with [the required documents.] x x x.
xxxx
These requirements, however, were unceremoniously returned by
[respondent] bank with the assurance that since there was no other bidder
of the said property, there was no urgency for the same and that [Cebu
Bionic] also, in all events, is entitled to first option being the present
lessee.
The declaration of Atty. Panal to the effect that Cebu Bionic wanted to buy
the property on installment terms, such that the deposit of P184,000.00
was insufficient being only 10% of the offer, could not be given much
credence as it is refuted by Exh. H which is the negotiated offer to
purchase form under the 15-day acceptance period accomplished by
[petitioners] which shows clearly the written word Cash after the printed
words Term and Mode of Payment, Exhibit J, the Managers check issued
by Allied Banking Corporation dated December 3, 1990 in the amount
of P184,000.00 representing 10% of the offer showing the mode of
payment is for cash; Exhibit K which is the application for Managers check
in the amount of P184,000.00 dated December 3, 1990 showing the
 beneficiary as DBP. If it is true that the offer of [petitioners] was for
installment payments, then in the ordinary course of human
behavior, it would not have wasted effort in securing a Managers
check in the amount of P184,000.00 which was insufficient for 20%
deposit as required for installment payments. More credible is the
explanation [given by] witness Judy Garces when she said that DBP
through Atty. Panal returned the documents submitted by her,
saying that there was no urgency for the same as there was no other
bidder of [the said] property and that Cebu Bionic was entitled to a
first option to buy being the present lessee. In the letter also of
[respondent] bank dated June 18, 1987, it is important to note that aside
from requiring Cebu Bionic to comply with certain requirements of time
deposit and advance rental, as condition for constitution of lease between
the parties and which was complied by Cebu Bionic[,] said letter further
states in paragraph 3 thereof that in case there is [a] better offer or if the
property will be subject of a purchase offer, within the term, the lessee is
given the option of first refusal, otherwise, he has to vacate the premises
within thirty days. In answer to the Courts question, however, Atty. Panal
admitted that he did not tell [petitioners] that there was another party who
was willing to purchase the property, in violation of [petitioners] right of
first refusal.[39] (Emphasis ours.)
Likewise, the RTC found that respondents To Chip, Yap and Balila were aware of the lease
contract involving the subject properties before they purchased the same from DBP.Thus:
[Respondent] Jose To Chip lamely pretends ignorance that [petitioners]
are lessees of the property, subject matter of this case. He states that he
and his partners, the other [respondents], were given assurances by Atty.
Panal of the DBP that [Lydia Sia] is not a lessee, although he knew that
[petitioners] were presently occupying the property and that it was
possessed by [petitioners] even before it was owned by the DBP. x x x.
xxxx
[Respondent] Roger Balila, in his testimony, likewise pretended ignorance
that he knew that [Lydia Sia] was a lessee of the property. x x x.
xxxx
Upon further questioning by the Court, he admitted that [Lydia Sia] was
not possessing the building freely; that she was a lessee of Rudy Robles,
the former owner, but cleverly insisted in disowning knowledge that [Lydia
Sia] was a lessee, denying knowledge that [Lydia Sia] was paying rentals
to [respondent] bank. His pretended ignorance x x x was a way of evading
[Cebu Bionics] right of first priority to buy the property under the contract
of lease. x x x The Court is convinced that [respondents To Chip, Yap and
Balila] knew that [Cebu Bionic] was the present lessee of the property
before they bought the same from [respondent] bank. Common
observation, knowledge and experience dictates that as a prudent
businessman, it was but natural that he ask Lydia Sia what her status was
in occupying the property when he went to talk to her, that he ask her if
she was a lessee. But he said, all he asked her was whether she was
interested to buy the property. x x x.[40]
The trial court, therefore, concluded that:
From the foregoing facts on record, it is thus clear that [petitioner] Cebu
Bionic is the present lessee of the property, the lease contract having
been continued by [respondent] DBP when it received rental payments up
to March of 1991 as well as the advance rental for one year represented
by the assigned time deposit which is still in [respondent] banks
possession. The provision, therefore, in the lease contract, on the right of
first option to buy and the right of first refusal contained in [respondent]
banks letter dated June 18, 1987, are still subsisting and binding up to the
present, not only on [respondent] bank but also on [respondents To Chip,
Yap and Balila]. x x x.
xxxx
WHEREFORE, THE FOREGOING PREMISES CONSIDERED, judgment
is hereby rendered:
(1) Rescinding the Deed of Sale dated December 28, 1990
between [respondent] Development Bank of the Philippines
and [respondents] Roger Balila, Jose To Chip and Patricio
Yap;
(2) Ordering the [respondent] Development Bank of the
Philippines to execute a Deed of Sale over the property,
subject matter of this case upon payment by [petitioners] of
the whole consideration involved and to complete all acts or
documents necessary to have the title over said property
transferred to the name of [petitioners];
(3) Costs against [respondents].[41]
 DBP forthwith filed a Notice of Appeal.[42] Respondents To Chip, Yap and Balila
filed a Motion for Reconsideration[43] of the above decision, but the RTC denied the same in
an Order[44] dated July 4, 1997. Said respondents then filed their Notice of Appeal.[45]
On February 14, 2001, the Court of Appeals promulgated its
Decision,[46] pronouncing that:
We find nothing erroneous with the judgment rendered by the
trial court. Perforce, We sustain it and dismiss the [respondents]
submission.
The RTC determined, upon evidence on record after a careful
evaluation of the witnesses and their testimonies during the trial that
indeed [petitioners] right of first option was violated and thus, rescission of
the sale made by DBP to [respondents To Chip, Yap and Balila] are in
order.
xxxx
Apparently, DBP accepted [the documents submitted by
petitioners] and thereafter, through Atty. Panal (of DBP), returned all of it
to the [petitioners] with the assurance that since there was no other bidder
of the said property, there was no urgency for the same and that [Cebu
Bionic] also, in all events, is entitled to first option being the present
lessee.
[DBP] maintains that the return of the documents [submitted by
petitioners] was in order since the [petitioners] offered to buy the property
in question on installment basis requiring a higher 20% deposit. This,
however, was correctly rejected by the trial court[.] x x x
The binding effect of the lease agreement upon the [respondents
To Chip, Yap and Balila] must be sustained since from existing
jurisprudence cited by the lower court, it was determined during trial that:
... [respondents To Chip, Yap and Balila]
knew that [Cebu Bionic] was the present lessee of
the property before they bought the same from
[respondent] bank.Common observation, knowledge
and experience dictates that as a prudent
businessman, it was but natural that he ask Lydia
Sia what her status was in occupying the property
when he went to talk to her, that he ask her if she
was a lessee. But he said, all he asked her was
whether she was interested to buy the property. x x
x.
Moreover, We find that the submissions presented by the
[respondents] in their respective briefs argue against questions of facts as
found and determined by the lower court. The respondents contentions
consist of crude attempts to question the assessment and evaluation of
testimonies and other evidence gathered by the trial court.
It must be remembered that findings of fact as determined by the
trial court are entitled to great weight and respect from appellate courts
and should not be disturbed on appeal unless for [strong] and cogent
reasons. These findings generally, so long as supported by evidence on
record, are not to be disturbed unless there are some facts or evidence
which the trial court has misappreciated or overlooked, and which if
considered would have altered the results of the entire case. Sad to say
for the [respondents], We see no reason to depart from this well-settled
legal principle.
WHEREFORE, in view of the foregoing, the judgment of the
Regional Trial Court of Cebu City, Branch 8, in Civil Case No. 10104 is
hereby AFFIRMED in toto.[47]
On October 1, 2001, petitioners filed a Motion for Issuance of Entry of
Judgment.[48] Petitioners stressed that, based on the records of the case, respondents were
served a copy of the Court of Appeals Decision dated February 14, 2001 sometime on
March 7, 2001. However, petitioners discovered that respondents have not filed any motion
for reconsideration of the said decision within the reglementary period therefor, nor was
there any petition for certiorari or appeal filed before the Supreme Court.
In response to the above motion, respondents To Chip, Yap and Balila filed on
October 8, 2001 a Motion to Admit Motion for Reconsideration. [49] Atty. Francis M. Zosa, the
counsel for respondents To Chip, Yap and Balila, explained that he sent copies of the
motion for reconsideration to petitioners and DBP via personal delivery. On the other hand,
the copies of the motion to be filed with the Court of Appeals were purportedly sent to Mr.
Domingo Tan, a friend of Atty. Zosa in Quezon City, who agreed to file the same personally
with the appellate court in Manila. When Atty. Zosa inquired if the motion for reconsideration
was accordingly filed, Mr. Tan allegedly answered in the affirmative. To his surprise, Atty.
Zosa received a copy of petitioners Motion for Issuance of Entry of Judgment. Atty. Zosa,
thus, attributed the failure of his clients to file a motion for reconsideration on the mistake,
excusable negligence and/or fraud committed by Mr. Tan.
 In the assailed Resolution dated February 5, 2002, the Court of Appeals granted
the motion of respondents To Chip, Yap and Balila and admitted the motion for
reconsideration attached therewith in the higher interest of substantial justice.[50]
On July 5, 2002, the Court of Appeals reversed its original Decision dated February
14, 2001, reasoning thus:
After a judicious review and reevaluation of the evidence and
facts on record, we are convinced that DBP had terminated the Robles
lease contract. From its letter of June 18, 1987, DBP had expressly
notified [petitioners] that (I)f they wish to continue on leasing the property
x x x to come to the Bank for the execution of a Contract of Lease, the
salient conditions of which are as follows:
1. The lease will be on a month to month basis for a
maximum period of one (1) year;
2. Deposit equivalent to two (2) months rental and advance
of one (1) month rental, and the remaining amount for one year
(equivalent to 9 months rental) shall be secured by either surety
bond, cash bond or assigned time deposit;
3. That in case there is a better offer or if the property will be
subject of a purchase offer, within the term, the lessor is given an
option of first refusal, otherwise he has to vacate the premises
within thirty (30) days from date of notice.
We consider, temporarily, the current monthly rental based on
the six-month receipts, which we require you to submit, until such time
when we will fix the amount accordingly.
Evidently, except for the remittance of the monthly rentals up to
March 1991, the conditions imposed by DBP have never been complied
with. [Petitioners] did not go to the Bank to sign any new written contract
of lease with DBP. [Petitioners] also did not put up a surety bond nor cash
bond nor assign a time deposit to secure the payment of rental for nine (9)
months, although the [petitioners] opened a time deposit but did not
assign it to DBP.
But even with the remittance and acceptance of the deposit
made by [petitioners] equivalent to two (2) months rental and advance of
one (1) month rental it does not necessarily follow that DBP opted to
continue with the Robles lease. This is because the Robles contract
provides:
That the term of the agreement shall start
on November 1, 1981 and shall terminate on the last
day of every month thereafter, provided however,
that this contract shall be automatically renewed on
a month to month basis if no notice in writing is
sent to the other party to determine to terminate
this agreement after fifteen (15) days from the
receipt of said notice.
Here, a notice was sent to [petitioners] on June 18, 1987, informing them
that if they wish to continue on leasing the property, we request you to
come to the Bank for the execution of a Contract of Lease x x x.
[Petitioners] failed to enter into the contract of lease required by
DBP for it to continue occupying the leased premises.
Because of [petitioners] failure to comply with the conditions
embodied in the 18 June 1987 letter, it cannot be said that [petitioners]
entered into a new contract with DBP where they were given the first
option to buy the leased property and to match offers from outside parties.
xxxx
Be that as it may, DBP continued to accept the monthly rentals
based on the old Robles contract despite the fact that the [petitioners]
failed to enter into a written lease contract with it.Corollarily, the relations
between the parties is now governed by Article 1670 of the New Civil
Code, thus:
Art. 1670. If at the end of 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.
xxxx
x x x [T]he acceptance by DBP of the monthly rentals does not
mean that the terms of the Robles contract were revived. In the case
of Dizon vs. Court of Appeals, the Supreme Court declared that:

The other terms of the original contract of
lease which are revived in the implied new lease under
Article 1670 of the New Civil Code are only those terms
which are germane to the lessees right [of] continued
enjoyment of the property leased an implied new lease
does not ipso facto carry with it any implied revival of
any option to purchase the leased premises.
In view of the foregoing, it is clear that [petitioners] had no right
to file a case for rescission of the deed of sale executed by DBP in
favor of [respondents To Chip, Yap and Balila] because said deed of sale
did not violate their alleged first option to buy or match offers from outside
parties which is legally non-existent and which was not impliedly renewed
under Article 1670 of the Civil Code.
WHEREFORE, premises considered, the 14 February 2001
Decision is hereby RECONSIDERED and another one is issued
REVERSING the 25 April 1997 Decision of the Regional Trial Court,
Branch 8, Cebu City in Civil Case No. CEB-10104 and the complaint of
[petitioners] is DISMISSED for lack of merit.[51]
Without seeking a reconsideration of the above decision, petitioners filed the
instant petition. In their Comment, respondents opposed the petition on both procedural and
substantive grounds.
In petitioners Memorandum, they summarized the issues to be resolved in the
present case as follows:
A) PRELIMINARY ISSUES:
I V
WHETHER OR NOT THE VERIFICATION (AND CERTIFICATION OF
NON-FORUM SHOPPING) IN THE INSTANT PETITION WAS PROPER
AND VALID DESPITE ITS BEING SIGNED BY ONLY ONE OF THE TWO
PETITIONERS.
II
WHETHER OR NOT ONLY QUESTIONS OF LAW AND NOT OF FACT
CAN BE RAISED IN THE INSTANT PETITION BEFORE THIS HON.
SUPREME COURT.
B) MAIN AND PRINCIPAL ISSUES IN THE INSTANT PETITION:
I
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN
ADMITTING RESPONDENTS MOTION FOR RECONSIDERATION
DESPITE ITS BEING FILED OUT OF TIME
II
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN
DECLARING THAT PETITIONERS DID NOT ENTER INTO CONTRACT
WITH RESPONDENT DBP CONTINUING THE TERMS OF THE
ROBLES CONTRACT
III
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN
IT DECLARED THAT THE CONTINUATION BY RESPONDENT DBP OF
THE LEASE CONTRACT DID NOT CONTAIN THE RIGHT OF FIRST
REFUSAL
IV
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN
IT DECLARED THAT THE LEASE CONTRACT IS GOVERNED BY ART.
1670 OF THE NEW CIVIL CODE
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN
IT FAILED TO RECOGNIZE PETITIONERS RIGHT OF FIRST REFUSAL
TO WHICH RESPONDENTS WERE BOUND
VI
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN
IT FAILED TO DECLARE THAT RESPONDENT DBP HAD VIOLATED
PETITIONERS RIGHTS
VII
 WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN
REVERSING ITS OWN JUDGMENT AND DISMISSING PETITIONERS
CLAIM FOR RESCISSION[52]
We shall first resolve the preliminary issues.
Respondents To Chip, Yap and Balila argue that the instant petition should be dismissed
outright as the verification and certification of non-forum shopping was executed only by
petitioner Lydia Sia in her personal capacity, without the participation of Cebu Bionic.
The Court is not persuaded.
Except for the powers which are expressly conferred on it by the Corporation Code
and those that are implied by or are incidental to its existence, a corporation has no
powers. It exercises its powers through its board of directors and/or its duly authorized
officers and agents. Thus, its power to sue and be sued in any court is lodged with the
board of directors that exercises its corporate powers. [53] Physical acts, like the signing of
documents, can be performed only by natural persons duly authorized for the purpose by
corporate by-laws or by a specific act of the board of directors.[54]
In this case, respondents To Chip, Yap and Balila obviously overlooked the
Secretarys Certificate[55] attached to the instant petition, which was executed by the
Corporate Secretary of Cebu Bionic. Unequivocally stated therein was the fact that the
Board of Directors of Cebu Bionic held a special meeting on July 26, 2002 and they thereby
approved a Resolution authorizing Lydia Sia to elevate the present case to this Court in
behalf of Cebu Bionic, to wit:
Whereas, the board appointed LYDIA I. SIA to act and in behalf
of the corporation to file the CERTIORARI with the Supreme Court in
relations to the decision of the Court of Appeals dated July 5, 2002 which
reversed its own judgment earlier promulgated on February 14, 2001
entitled CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA,
(Petitioners- Appellants) versus THE DEVELOPMENT BANK OF THE
PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA
(Respondents- Appelles), docketed CA-G.R. NO. 57216.
Whereas, on mass unanimously motion of all members of
directors present hereby approved the appointment of LYDIA I. SIA to act
and sign all papers in connection of CA-G.R. NO. 57216.
Resolved and it is hereby resolve to appoint and authorized
LYDIA I. SIA to sign and file with the SUPREME COURT in connection to
decision of the Court of Appeals as above mention. [56]
Respondents To Chip, Yap and Balila next argue that the instant petition raises
questions of fact, which are not allowed in a petition for review on certiorari. They, therefore,
submit that the factual findings of the Court of Appeals are binding on this Court.
Section 1, Rule 45 of the Rules of Court categorically states that the petition filed
thereunder shall raise only questions of law, which must be distinctly set forth. A question of
law arises when there is doubt as to what the law is on a certain state of facts, while there is
a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a
question to be one of law, the same must not involve an examination of the probative value
of the evidence presented by the litigants or any of them. The resolution of the issue must
rest solely on what the law provides on the given set of circumstances. Once it is clear that
the issue invites a review of the evidence presented, the question posed is one of fact. [57]
The above rule, however, admits of certain exceptions, [58] one of which is when the
findings of the Court of Appeals are contrary to those of the trial court. As will be discussed
further, this exception is attendant in the case at bar.
We now determine the principal issues put forward by petitioners.
First off, petitioners fault the Court of Appeals for admitting the Motion for
Reconsideration of its Decision dated February 14, 2001, which was filed by respondents To
Chip, Yap and Balila more than six months after receipt of the said decision. The motion
was eventually granted and the Court of Appeals issued its assailed Amended Decision,
ruling in favor of respondents.
Indeed, the appellate courts Decision dated February 14, 2001 would have
ordinarily attained finality for failure of respondents to seasonably file their Motion for
Reconsideration thereon. However, we agree with the Court of Appeals that the higher
interest of substantial justice will be better served if respondents procedural lapse will be
excused.
Verily, we had occasion to apply this liberality in the application of procedural rules
in Barnes v. Padilla[59] where we aptly declared that
The failure of the petitioner to file his motion for reconsideration within the
period fixed by law renders the decision final and executory. Such failure
carries with it the result that no court can exercise appellate jurisdiction to
review the case. Phrased elsewise, a final and executory judgment can no
longer be attacked by any of the parties or be modified, directly or
indirectly, even by the highest court of the land.
 However, this Court has relaxed this rule in order to serve
substantial justice considering (a) matters of life, liberty, honor or property,
(b) the existence of special or compelling circumstances, (c) the merits of
the case, (d) a cause not entirely attributable to the fault or negligence of
the party favored by the suspension of the rules, (e) a lack of any showing
that the review sought is merely frivolous and dilatory, and (f) the other
party will not be unjustly prejudiced thereby.[60]
In this case, what are involved are the property rights of the parties given that,
ultimately, the fundamental issue to be determined is who among the petitioners and
respondents To Chip, Yap and Balila has the better right to purchase the subject
properties. More importantly, the merits of the case sufficiently called for the suspension of
the rules in order to settle conclusively the rights and obligations of the parties herein.
In essence, the questions that must be resolved are: 1) whether or not there was a
contract of lease between petitioners and DBP; 2) if in the affirmative, whether or not this
contract contained a right of first refusal in favor of petitioners; and 3) whether or not
respondents To Chip, Yap and Balila are likewise bound by such right of first refusal.
Petitioners contend that there was a contract of lease between them and DBP,
considering that they had been allowed to occupy the premises of the subject property from
1987 up to 1991 and DBP received their rental payments corresponding to the said
period. Petitioners claim that DBP were aware of their lease on the subject property when
the latter foreclosed the same and the acquisition of the subject properties through
foreclosure did not terminate the lease. Petitioners subscribe to the ruling of the RTC that
even if there was no written contract of lease, DBP chose to continue the existing contract of
lease between petitioners and Rudy Robles by accepting the requirements set down by
DBP on the letter dated June 18, 1987. Petitioners likewise posit that the contract of lease
between them and Rudy Robles never expired, inasmuch as the contract did not have a
definite term and none of the parties thereto terminated the same. In view of the
continuation of the lease contract between petitioners and Rudy Robles, petitioners submit
that Article 1670 of the Civil Code on implied lease is not applicable on the instant case.
We are not persuaded.
In Uy v. Land Bank of the Philippines,[61] the Court held that [i]n respect of the
lease on the foreclosed property, the buyer at the foreclosure sale merely succeeds to the
rights and obligations of the pledgor-mortgagor subject to the provisions of Article 1676 of
the Civil Code on its possible termination. This article provides that [t]he purchaser of a
piece of land which is under a lease that is not recorded in the Registry of Property may
terminate the lease, save when there is a stipulation to the contrary in the contract of sale,
or when the purchaser knows of the existence of the lease. In short, the buyer at the
foreclosure sale, as a rule, may terminate an unregistered lease except when it knows of the
existence of the lease.
In the instant case, the lease contract between petitioners and Rudy Robles was
not registered.[62] During trial, DBP denied having any knowledge of the said lease
contract.[63] It asserted that the lease was merely presumed in view of the existence of
tenants in the subject property.[64] Nevertheless, DBP recognized and acknowledged this
lease contract in its letter dated June 18, 1987, which was addressed to Bonifacio Sia, then
President of Cebu Bionic. DBP even required Sia to pay the monthly rental for the month of
June 1987, thereby exercising the right of the previous lessor, Rudy Robles, to collect the
rental payments from the lessee. In the same letter, DBP extended an offer to Cebu Bionic
to continue the lease on the subject property, outlining the provisions of the proposed
contract and specifically instructing the latter to come to the bank for the execution of the
same. DBP likewise gave Cebu Bionic a 30-day period within which to act on the said
contract execution. Should Cebu Bionic fail to do so, it would be deemed uninterested in
continuing with the lease. In that eventuality, the letter states that Cebu Bionic should vacate
the premises within the said period.
Instead of acceding to the terms of the aforementioned letter, the counsel of Cebu
Bionic sent a counter-offer to DBP dated July 7, 1987, suggesting a different mode of
payment for the rentals and requesting for a 60-day period within which time the parties will
execute a new contract of lease.
The parties, however, failed to execute a written contract of lease. Petitioners put
the blame on DBP, asserting that no contract was signed because DBP did not prepare it for
them. DBP, on the other hand, counters that it was petitioners who did not positively act on
the conditions for the execution of the lease contract. In view of the counter-offer of
petitioners, DBP and respondents To Chip, Yap and Balila argue that there was no meeting
of minds between DBP and petitioners, which would have given rise to a new contract of
lease.
The Court rules that, indeed, no new contract of lease was ever perfected between
petitioners and DBP.
In Metropolitan Manila Development Authority v. JANCOM Environmental
Corporation,[65] we emphasized that:
Under Article 1305 of the Civil Code, [a] contract is a meeting of
minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service. A contract
undergoes three distinct stages preparation or negotiation, its perfection,
and finally, its consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and
ends at the moment of agreement of the parties. The perfection or birth of
 the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is the consummation of the
contract wherein the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof (Bugatti vs. CA, 343
SCRA 335 [2000]). Article 1315 of the Civil Code, provides that a contract
is perfected by mere consent. Consent, on the other hand, is manifested
by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract (See Article 1319, Civil Code).
x x x.[66]
In the case at bar, there was no concurrence of offer and acceptance vis--vis the
terms of the proposed lease agreement. In fact, after the reply of petitioners counsel dated
July 7, 1987, there was no indication that the parties undertook any other action to pursue
the execution of the intended lease contract. Petitioners even admitted that they merely
waited for DBP to present the contract to them, despite being instructed to come to the bank
for the execution of the same.[67]
Contrary to the ruling of the RTC, the Court is also not convinced that DBP opted
to continue the existing lease contract between petitioners and Rudy Robles.
The findings of the RTC that DBP supposedly accepted the requirements the latter
set forth in its letter dated June 18, 1987 is not well taken. To recapitulate, the third
paragraph of the letter reads:
If you wish to continue on leasing the property, we request you to
come to the Bank for the execution of a Contract of Lease, the
salient conditions of which are as follows:
1. The lease will be on month to month basis, for a maximum
period of one (1) year;
2. Deposit equivalent to two (2) months rental and advance of
one (1) month rental, and the remaining amount for one
year period (equivalent to 9 months rental) shall be
secured by either surety bond, cash bond or assigned
time deposit;
3. That in case there is a better offer or if the property
will be subject of a purchase offer, within the term, the
lessor is given an option of first refusal, otherwise he
has to vacate the premises within thirty (30) days from
date of notice.[68]
The so-called requirements enumerated in the above paragraph are not really
requirements to be complied with by the petitioners for the execution of the proposed lease
contract, as apparently considered by the RTC and the petitioners. A close reading of the
letter reveals that the items enumerated therein were in fact the salient terms and conditions
of the proposed contract of lease, which the DBP and the petitioners were to execute if the
latter were so willing. Also, the Certificate of Time Deposit in the amount of P11,395.64,
which was allegedly paid to DBP as advance rental deposit pursuant to the said
requirements, was not even clearly established as such since it was neither secured by a
security bond or a cash bond, nor was it assigned to DBP.
The contention that the lease contract between petitioners and Rudy Robles did
not expire, given that it did not have a definite term and the parties thereto failed to
terminate the same, deserves scant consideration. To recall, the second paragraph of the
terms and conditions of the contract of lease between petitioners and Rudy Robles reads:
2. That the term of this agreement shall start on November 1, 1981 and
shall terminate on the last day of every month thereafter; provided
however that this contract shall be automatically renewed on a month
to month basis if no notice, in writing, is sent to the other party to
terminate this agreement after fifteen (15) days from receipt of said
notice.[69] (Emphases ours.)
Crystal clear from the above provision is that the lease is on a month-to-month
basis. Relevantly, the well-entrenched principle is that a lease from month-to-month is with a
definite period and expires at the end of each month upon the demand to vacate by the
lessor.[70] As held by the Court of Appeals in the assailed Amended Decision, the above-
mentioned lease contract was duly terminated by DBP by virtue of its letter dated June 18,
1987. We reiterate that the letter explicitly directed the petitioners to come to the office of
the DBP if they wished to enter into a new lease agreement with the said bank. Otherwise, if
no contract of lease was executed within 30 days from the date of the letter, petitioners were
to be considered uninterested in entering into a new contract and were thereby ordered to
vacate the property. As no new contract was in fact executed between petitioners and DBP
within the 30-day period, the directive to vacate, thus, took effect. DBPs letter dated June
18, 1987, therefore, constituted the written notice that was required to terminate the lease
agreement between petitioners and Rudy Robles. From then on, the petitioners continued
possession of the subject property could be deemed to be without the consent of DBP.
Thusly, petitioners assertion that Article 1670 of the Civil Code is not applicable to
the instant case is correct. The reason, however, is not that the existing contract was
continued by DBP, but because the lease was terminated by DBP, which termination was
accompanied by a demand to petitioners to vacate the premises of the subject property.
 Article 1670 states that [i]f 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. In view
of the order to vacate embodied in the letter of DBP dated June 18, 1987 in the event that
no new lease contract is entered into, the petitioners continued possession of the subject
properties was without the acquiescence of DBP, thereby negating the constitution of an
implied lease.
Contrary to the ruling of the RTC, DBPs acceptance of petitioners rental payments
of P5,000.00 for the period of November 1990 to March 1991 did not likewise give rise to an
implied lease between petitioners and DBP. In Tagbilaran Integrated Settlers Association
(TISA) Incorporated v. Court of Appeals,[71] we held that the subsequent acceptance by the
lessor of rental payments does not, absent any circumstance that may dictate a contrary
conclusion, legitimize the unlawful character of their possession. In the present case, the
petitioners rental payments to DBP were made in lump sum on March 22,
1991. Significantly, said payments were remitted only after petitioners were notified of the
sale of the subject properties to respondents To Chip, Yap and Balila and after the
petitioners were given a final demand to vacate the properties. These facts substantially
weaken, if not controvert, the finding of the RTC and the argument of petitioners that the
latter were faithfully remitting their rental payments to DBP until the year 1991.
the care of the property, the responsibility for repairs, etc. But no such
presumption may be indulged in with respect to special agreements which
by nature are foreign to the right of occupancy or enjoyment inherent in a
contract of lease.[73]
DBP cannot, therefore, be accused of violating the rights of petitioners when it
offered the subject properties for sale, and eventually sold the same to respondents To
Chip, Yap and Balila, without first notifying petitioners. Neither were the said respondents
bound by any right of first refusal in favor of petitioners. Consequently, the sale of the
subject properties to respondents was valid. Petitioners claim for rescission was properly
dismissed.
WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of
Court is DENIED. The Resolution dated February 5, 2002 and the Amended Decision dated
July 5, 2002 of the Court of Appeals in CA-G.R. CV No. 57216 are hereby AFFIRMED. No
costs.
SO ORDERED.

Thus, having determined that the petitioners and DBP neither executed a new
lease agreement, nor entered into an implied lease contract, it follows that petitioners claim
of entitlement to a right of first refusal has no leg to stand on. Furthermore, even if we were
to grant, for the sake of argument, that an implied lease was constituted between petitioners
and the DBP, the right of first refusal that was contained in the prior lease contract with
Rudy Robles was not renewed therewith. This is in accordance with the ruling in Dizon v.
Magsaysay,[72] which involved the issue of whether a provision regarding a preferential right
to purchase is revived in an implied lease under Article 1670, to wit:

[T]he other terms of the original contract which are revived in the implied
new lease under Article 1670 are only those terms which are germane to
the lessees right of continued enjoyment of the property leased. This is a
reasonable construction of the provision, which is based on the
presumption that when the lessor allows the lessee to continue enjoying
possession of the property for fifteen days after the expiration of the
contract he is willing that such enjoyment shall be for the entire period
corresponding to the rent which is customarily paid in this case up to the
end of the month because the rent was paid monthly. Necessarily, if the
presumed will of the parties refers to the enjoyment of possession the
presumption covers the other terms of the contract related to such
possession, such as the amount of rental, the date when it must be paid,