FIRST DIVISION

[G.R. No. 70360. March 11, 1987.]

AREVALO GOMEZ CORPORATION , petitioners, vs. ANDRES LAO HIAN

LIONG, doing business in the name and style of "TIONGSON BAZAAR"
and The Honorable SALVADOR J. VALDEZ, JR. , respondents.

Feria, Feria, Lugtu & Lao for petitioner.

Deogracia Eufemio for respondents.

DECISION

CRUZ , J : p

Some agreements deteriorate into misunderstandings, turning close friends into

irreconcilable adversaries and sweet harmony into bitter discord. This is one of them. cdll

On December 1, 1964, the petitioner through its Vice President, Renato Arevalo, and
respondent Andres Lao Hian Liong, executed a "Contract of Lease" covering the
petitioner's property at Magsaysay Avenue, Baguio City, for a term of fifteen years,
effective September 1, 1964. The monthly rental was fixed at P2,450.00 but in addition to
this the respondent agreed to construct on the interior portion of the land leased a three-
storey building of strong materials without right to reimbursement from the petitioner. The
cost of the building was to be not less than P150,000.00, of which the sum of P45,000.00
would be contributed by petitioner. 1
Prior to the expiration of the lease on August 31, 1979, and for some time thereafter, the
parties entered into negotiations to fix a new rental but could not come to any agreement.
In the end, on October 2, 1979, the petitioner served on the respondent a written notice to
vacate the leased premises in view of the termination of their contract. 2 When the
respondent refused to comply, the petitioner filed a complaint for ejectment against him in
the City Court of Baguio City.
Applying Article 1670 of Civil Code, the trial court held in favor of the defendant as follows:
"In the case on hand, it is admitted that the 15-year lease contract between the
parties expired on August 31, 1979. However, the defendant has continued
occupying the leased premises thereafter and even to this day. And it was only on
October 2, 1979, or after more than 15 days after the expiration of the original
contract of lease, that he was given the requisite notice to vacate. It is, therefore,
abundantly clear that under the law, an implied new lease had already set in when
the plaintiff commenced its action for ejectment on November 19, 1979. . . . ." 3

The trial court also extended the period of the lease by five years from October 1, 1979,
pursuant to Article 1670 in relation to Article 1687 of the Civil Code, and fixed the new
rentals at P10,406.00 a month. 4
Both parties appealed. The petitioner contended that the original lease had not been
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 impliedly renewed but automatically expired on August 31, 1979. The respondent, for his
part, prayed for a longer extension of fifteen years, considering the nature of his business
(a bazaar) and his investment therein. He also claimed that, prior to the execution of the
contract, the petitioner had assured him he could stay indefinitely in the disputed
premises. 5
The Regional Trial Court of Baguio City affirmed the implied renewal of the lease but
modified the appealed judgment by extending the lease for ten years from September 1,
1979, or until August 31, 1989. The respondent judge also increased the new rentals to
P18,600.00 per month, effective September 1, 1979. 6 A motion for reconsideration and
for new trial was filed by petitioner but the same was denied. The petition then came to us
with the following assignment of errors:
"1) Respondent Judge, as well as the trial judge, erred in deciding the case at
bar in a way not in accordance with law or with the applicable decisions of this
Honorable Court, particularly its decision in Roxas vs. Alcantara, 113 SCRA 21.
2) Respondent judge, as well as the trial judge, erred in holding that there was
implied renewal or tacita reconduccion despite the refusal of respondent Liong to
agree to the increased rental demanded by petitioner prior to the expiration of the
contract of lease.

3) Respondent judge, as well as the trial judge, erred in holding that there was
implied renewal or tacita reconduccion despite the refusal of petitioner to accept
payment of rentals from respondent Liong after the expiration of the Contract of
Lease.
4) Assuming for the sake of argument that Article 1687 of the New Civil Code
is applicable, the trial judge erred and gravely abused his discretion by extending
the lease for five (5) years and respondent judge erred and compounded the grave
abuse of discretion by extending the lease for ten (10) years.

5) Respondent judge, as well as the trial judge, erred in admitting parol

evidence with respect to the term of the lease.

6) Respondent judge erred in not granting a new trial for the admission in
evidence of the building permit of the new building of respondent Liong which
was issued after the decision of the trial court.
7) Respondent judge erred in not admitting in evidence or taking judicial
notice of the Central Bank Certification dated August 21, 1984 showing the three
successive devaluations or depreciation of the Philippine peso after the decision
of the trial court." 7

We address ourselves first to the submission of the respondent that the factual findings of
the court a quo cannot be reviewed in these proceedings which have been filed under Rule
65 of the Rules of Court. That is not exactly correct. We note that, as the caption of the
petition indicates, it was filed not only under the said rule but also as an appeal by
certiorari under Rule 45, which, while generally limited to questions of law, nevertheless
allows review of the judgment a quo when it is based on a misapprehension of facts. 8 We
shall apply this exception and treat this petition as solely filed under the latter rule. 9
It is not disputed that the original lease contract between the parties was only for fifteen
years expiring on August 31, 1979. The private respondent nonetheless continued
occupying the leased premises beyond that date and it was only on October 2, 1979, that
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 he was formally served with notice to vacate. What is in issue then is whether such
continued occupancy was with or without the implied acquiescence of the petitioner. LibLex

The applicable provisions of Civil Code are the following:

"Article 1669. If the lease was made for a determinate time, it ceases upon the
day fixed, without the need of a demand."
"Article 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 Article 1682 and 1687. The other terms of the original
contract shall be revived."

Under the second article, an implied new lease or tacita reconduccion will set in if it is
shown that: (a) the term of the original contract of lease has expired; (b) the lessor has not
given the lessee a notice to vacate; and (c) the lessee continued enjoying the thing leased
for fifteen days with the acquiescence of the lessor. 1 0 This acquiescence may be inferred
from his failure to serve a notice to quit. 1 1
The petitioner contends that the service of an express notice to quit is not the only way to
prevent the implied renewal of the lease. Demanding a higher rental is also a manifestation
of non-acquiescence if the lessee does not accept the rate demanded. In other words,
failure of agreement on the new conditions of the lease results in an automatic notice to
vacate upon the expiration of the original lease.
In support of this position, the petitioner relies on the case of Roxas vs. Alcantara, 1 2 where
this Court declared:
". . . . Petitioner's letter of August 11, 1977 was a reminder to private respondent of
the impending expiration of the lease contract. Exh. 'A,' with a statement that was
in effect an offer or proposal to renew the contract on the terms and conditions,
namely: (1) that the rental would be P4,000.00 a month; (2) that three years
advance rental should be paid by private respondent; and (3) that a 15% yearly
increase in rental would be imposed. In other words, petitioner laid down the
foregoing stipulations as conditions sine qua non for any subsequent contract
that might be negotiated with private respondent. Thus clear from the letter, Exh.
'C,' is that if private respondent were not agreeable to any or all of the new
stipulations, there would be no renewal of the lease. Private respondent was to
communicate his reply within fifteen days from receipt of Exh. 'C,' absent which
petitioner would take it to mean that his conditions were acceptable to private
respondent and their contract renewed on the specified terms. However, private
respondent's letter, Exh. 'F,' evidently posted before the expiration of the period
allowed within which to decide, did not give a categorical affirmative or negative
answer to petitioner's proposition, and merely manifested the said lessee's desire
to study the matter until end of the following month of September, 1977, or up to
the termination of the then existing contract of lease, Exh. 'A.' Petitioner's failure
to reply to the letter, Exh. 'F,' can only be taken to mean that he acceded to the
request for additional time. For the obvious reason that the lease contract (Exh.
'A') was expiring, it became more imperative for private respondent to make a
final decision within and not later than the extended period which he asked for.
Thus, when petitioner did not hear from private respondent at the end of the
aforesaid month of September, private respondent ceased to have any legal right
to possess and occupy the premises in question commencing the first day of the
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 following month of October."

As we see it, Article 1670 applies only where, before the expiration of the lease, no
negotiations are held between the lessor and the lessee resulting in its renewal. Where no
such talks take place and the lessee is not asked to vacate before the lapse of fifteen days
from the end of the lease, the implication is that the lessor is amenable to its renewal. prcd

Where the lessor is unwilling in any event to renew the lease for whatever reason, it will be
necessary for him to serve on the lessee a formal notice to vacate. As no talks have been
held between the lessor and the lessee concerning the renewal of the lease, there can be
no inference that the former, by his inaction, intends to discontinue it. In such a case, no
less than an express notice to vacate must be made within the statutory 15-day period.
Applying these principles, the Court holds that the lease was not impliedly renewed in the
instant case.
It is a matter of record that weeks before the deadline for the notice to vacate, the
petitioner had already communicated to the respondent its intention to increase the rental.
This increase had to be accepted by the respondent if he wanted the lease to be renewed.
Significantly, in its letter to the respondent on September 18, 1979, 1 3 the petitioner once
again rejected the latter's counter-proposal and categorically declared that the increased
rental of P35,000.00 was "no longer negotiable." Since this was a reply to the respondent's
letter of September 14, 1979, 1 4 it is obvious that the increase in rental was notified to the
respondent on an earlier date, and before the expiration of the original lease.
As of that date, the respondent was already being informed that he would have to vacate
the leased premises on August 31, 1979, unless he was willing to pay the increased rental
demanded by the lessor. Stated otherwise, the respondent was on that date — which was
clearly before the statutory deadline — being served a conditional notice to vacate.
The formal notice to vacate sent by the petitioner to the respondent on October 2, 1984,
was thus merely a reiteration of the implied demand made to him in its previous
communications. The demand was that he vacate the leased premises if he could not
accept the non-negotiable increased rental of P35,000.00 a month. If the petitioner saw fit
to write that letter on the said date, which admittedly was beyond the 15-day statutory
period, it was merely to repeat its insistence on the new rate as an indispensable condition
to the renewal of the lease. The legal consequence of its rejection by the respondent was
its obligation to vacate the leased premises because of the expiration of the lease.
Even if, as urged by the respondent, we should disregard the petitioner's letter of August
31, 1979, because it was not submitted at the trial, there nevertheless are the other letters
which were formally offered in evidence by the respondent himself. These are Exhibit "5"
and "Exhibit "6", dated September 5 and 14, 1979, respectively, in which he rejected the
petitioner's demand for the increased rental of P35,000.00. This could mean only that the
demand was made earlier as the said letters were merely a reaction to such demand.
These demands, as conditional notices to vacate if the petitioner's new rental was
rejected, satisfied the requirement of Article 1670. LLphil

It should be noted that, after August 1979, the petitioner refused to accept the
respondent's payments of the old rentals, demanding, as it had the right to do, the
increased rate of P35,000.00. Such a stance negates the conclusion that it was willing to
renew the lease under the original conditions and had, by its silence, impliedly agreed to
the retention of all its provisions. In fact, far from being silent, the petitioner repeatedly
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 insisted on the new rentals, and, to suit its actions to its words, flatly refused the tender of
the old rentals by the respondent. 1 5
No less worthy of attention is the circumstance that in its letter of September 18, 1979,
the respondent counter-proposed a monthly rental of P27,000.00, which the petitioner
rejected. 1 6 It could be illogical to suppose that, having done this, the petitioner would later
agree to the implied renewal of the lease for the original rental of only P2,450.00, thereby
forfeiting the amount of P24,550.00 every month.
As the original lease contract expired on August 31, 1979, and was not legally renewed, it
follows that the respondent has since then been in illegal possession of the leased
premises. That unlawful detainer, which has lasted more than seven years now, during
which he has retained all the rights he originally enjoyed as if the lease had been validly
renewed, must be terminated immediately.
Coming finally to the monthly rentals to be paid by the respondent, it appears that between
the rate of P35,000.00 demanded by the petitioner and the respondent's counter-proposal
of P27,000.00, there is a difference of only P8,000.00. It is unfortunate that the
disagreement could not be ironed out in the spirit of friendship that used to characterize
the relations of the parties. 1 7 The respondent judge, for his part, using as basis a fair
monthly rental value of P50.00 for every square meter of the 372 square meter floor area
of the property leased, fixed the monthly rental at P18,600.00. 1 8
Considering all the above circumstances, and by way of effecting a reasonable
compromise between the parties, we hereby rule that the rentals to be paid for the use and
occupancy of the leased premises beginning September 1, 1979, and until it is vacated by
the respondent, shall be P30,000.00 per month, with interest at the legal rate. From the
total amount due shall be deducted the sums judicially deposited by the respondent. We
shall also fix the attorney's fee in the sum of P30,000.00, taking into account the efforts
exerted by counsel in prosecuting this case, from the city court of Baguio and up to this
Court. It is hoped that, being an experienced businessman, and with this pending litigation
and its possible consequences in mind, he has taken the necessary measures to minimize
the other expenses of his relocation if, as it is now, ordered by this Court.prLL

WHEREFORE, the decision of the respondent judge dated August 8, 1984, is set aside and
a new decision is hereby rendered ordering respondent Andres Lao Hian Liong to: a)
vacate the leased premises immediately; b) pay the petitioner monthly rentals in the
amount of P30,000.00 plus legal interest, from September 1, 1979, until the leased
premises are surrendered to the petitioner; and c) pay an attorney's fee in the sum of
P30,000.00 and the costs of this suit. The deposits made by the respondent in court shall
be deducted from the total amount due from him. This decision shall be immediately
executory and no motion for reconsideration shall stay its execution.
SO ORDERED.
Yap (Chairman), Narvasa, Feliciano, Gancayco and Sarmiento, JJ., concur.
Melencio-Herrera, J., on official leave.
Footnotes

1. Rollo, pp. 30-31.

2. Ibid., p. 86.

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 3. Id., pp. 43-44.
4. id., p. 38.
5. id., p. 47.
6. id., p. 52.
7. id., pp. 106-107.
8. De la Cruz v. Sosing, 94 Phil. 26, cited in II Moran 475 (1979).

9. Elks Club v. Rovira, 80 Phil. 272; Lianga Lumber Co. v. Lianga Timber Co., 76 SCRA 197.
10. Civil Code Annotated, Vol. V, 1974 Ed., p. 711, Ambrocio Padilla.
11. Go Tiamco v. Diaz, 75 Phil. 672.
12. 113 SCRA 21.

13. Rollo, p. 11.

14. Ibid.
15. Exhibit "B".
16. Id.
17. Id., p. 22.
18. Id.

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