Malasarte vs.

CA
Facts:
On June 1, 1972, the respondents, spouses Nicolas and Ramona Gopiao, leased to the
petitioner, Vicente Mallarte, an apartment at 840 Moret, Sampaloc, Manila, on a month-to-month
basis for a monthly rental of P300. Paragraphs 8 and 9 of the lease agreement prohibited the
subleasing or assignment of a portion of the leased premises.

The Gopiaos, through their attorney-in-fact, made annual inspections of their apartment. In
June, 1979, they discovered that two rooms on the second floor and a portion of the living and
dining rooms had been converted into bed spaces for boarders. There were eight (8) bed
spacers and boarders, named (1) Adoracion Penalver, (2) Josefina Penalver, (3) Lourdes
Sulaput, (4) Gaudiosa Reyes, (5) Evelyn Reyes, (6) Adora Cruz, (7) Neptali and (8) Cesar
Penaranda. Adoracion Penalver, a NAWASA employee, occupied one of the second-floor
rooms with her sister, Josephine, but they moved out of the apartment on November 7, 1980
and Mallarte's daughter moved in on the same day.

Alleging that Mallarte had violated the lease contract, the Gopiaos demanded that he vacate the
premises. When he did not comply, they filed a complaint for ejectment in the barangay court of
Zone 45, 3rd district of Manila. Eventually, the case reached the courts.

Petitioner alleged that the boarders were his nephew, nieces, grandchildren or other relatives,
who are students at the Far Eastern University, and that the Gopiaos filed the ejectment suit
because they had demanded an increase in his rent from P300 to P600 per month which he
refused to pay.

Issue:
Whether or not there was a violation of the lease agreement.

Ruling:
We find for the petitioner, The taking in of boarders by the petitioner in the leased premises,
without the consent of the lessors, did not violate the lease agreement, for a prohibition against
subleasing may not embrace the taking in of boarders. Accepting boarders is not equivalent to
subleasing the premises. The lessee, by accepting boarders and assigning rooms or bed
spaces for them in the leased premises, does not relinquish or surrender his lease to them. He
did not cease to become the actual occupant and possessor of the demised premises. He did
not surrender the possession and control of the leased premises or a part thereof. By accepting
boarders in the apartment, the petitioner did not sublease portions of the apartment to the
boarders, but only agreed to provide them with meals and/or lodging for a price. Since neither
the law (BP Blg. 25, as amended) nor his contract with the property owner prohibits the
petitioner from accepting roomers, bed spacers, or boarders in the leased apartment, the lease
has not been violated. The lessors have no cause of action for the judicial ejectment of
petitioner-lessee.
Chua Tee Dee vs. CA
Facts:
J.C. Agricom Development Corporation, Inc. (Agricom, for brevity), a corporation duly organized
and existing under and by virtue of the laws of the Republic of the Philippines, is the owner of a
rubber plantation located at Bayabas, Toril, Davao City, with an area of 132.4012 hectares,
more or less. Agricom planned to lease the plantation.

Chua Tee Dee, married to Amado Dee, is a businesswoman doing business under the name
and style of Pioneer Enterprises (Pioneer, for brevity).

Manuel G. Alba, the president of Agricom, had a business meeting in Davao City with Amado
Dee where they discussed the possibility of leasing the rubber plantation to Chua Tee
Dee/Pioneer. Thereafter, a draft contract of lease was made and delivered to Alba on May 22,
1985.

The final contract of lease was signed and acknowledged before a notary public on July 22,
1985. The Agricom, represented by Alba, was referred to as the FIRST PARTY under the
contract, while Chua Tee Dee doing business under the style of Pioneer was the SECOND
PARTY. Lillian Carriedo, a stockholder of Agricom, also signed the contract.

In the meantime, Azarinas P. Liguiz of Agricom sent letters to the said employees, confirming
the termination of their employment and informing them that their separation pay shall be
computed at one-half (1/2) month’s salary for every year of service rendered, and that a fraction
of at least six (6) months service shall be considered as one year. Thereafter, the corresponding
vouchers were prepared.

Sometime thereafter, the severed employees filed a complaint for illegal dismissal and unfair
labor practice against Agricom, Amado Dee and Pioneer, docketed as NLRC Case No.
1815-LR-XI-85. Because Pioneer was dragged into labor disputes not of its own making, it
wrote Agricom, through its counsel, on October 20, 1987 suggesting a conference to settle the
labor case, otherwise, it would consider the contract of lease as rescinded.

Aside from the labor case, Pioneer, through Amado Dee, complained of being pestered by
some individuals who claimed portions of the plantation as their own property. Some of them
went to its office and even presented tax declarations to prove their claims. Pioneer claimed that
the foregoing circumstances prevented it from operating fully the agreed area stated in the lease
contract. It also complained that the death of Pioneer’s foreman sometime in 1990 even
exacerbated the unresolved labor problem.

On May 24, 1990, the counsel of the Carriedo heirs, the stockholders-owners of Agricom, sent a
telegraphic note to Amado Dee demanding payment of long overdue rentals. On June 21, 1990,
Pioneer sent a letter to Agricom complaining of facts and events which disrupted its operations
in the plantation. In a Letter dated August 2, 1990, Agricom informed Pioneer that, after due
investigation, it concluded that the latter’s complaints were unfounded. It also demanded the
payment of back rentals for June, July and August 1990.

As Pioneer was unable to pay its monthly rentals, Agricom filed, on September 4, 1990, a civil
complaint for sum of money, damages and attorney’s fees against Chua Tee Dee before the
Regional Trial Court of Davao City, Branch 9.

On October 16, 1990, the defendant filed her Answer with Damages where she asserted that
the plaintiff had no cause of action against her. She claimed that it was the plaintiff which failed
to comply with the terms and conditions of the contract of lease when it failed to settle the labor
dispute with its former employees, thus, dragging the defendant as respondent in NLRC Case
No. 1815-LR-XI-85; and that the plaintiff failed to maintain her in the quiet and peaceful
possession and enjoyment of the leased premises during the effectivity of the lease contract, in
violation of paragraphs 6 and 11 thereof.

Issue:
Whether or not there was a breach of the contract of lease.

Ruling:
In the case at bar, petitioner Chua Tee Dee is the lessee of the private respondent Agricom. As
lessor, the Agricom had the duty to maintain the petitioner in the peaceful and adequate
enjoyment of the leased premises. Such duty was made as part of the contract of lease entered
into by the parties. Even if it had not been so, the lessor is still duty-bound under Art. 1654 of
the Civil Code. The duty "to maintain the lessee in the peaceful and adequate enjoyment of the
lease for the duration of the contract" mentioned in no. 3 of the article is merely a warranty that
the lessee shall not be disturbed in his legal, and not physical, possession. In the case at bar,
the petitioner claims that several people presented tax declarations to her and claimed some
portions of the leased premises. However, no case was filed by any of the said claimants
against her or her lessor during the time she occupied the premises. Patently, then, the
petitioner had not been disturbed in her legal possession of the property in derogation of Article
1654 of the New Civil Code. When the petitioner’s representative saw that a portion of the
leased premises was being fenced by the claimants, she had all the right to sue the intruders
who had disturbed her physical possession as provided for in Article 1664 of the New Civil
Code. However, the petitioner did not file any suit against any of the claimants. Thus, it cannot
be said that the private respondent violated paragraph 11 of the contract of lease.

We agree with the trial court and the CA that the petitioner failed to prove that she suffered any
loss from the labor case that was filed against her enterprise and her husband. The trial court
declared that the petitioner "did not actually established (sic) the alleged losses especially in the
labor case with the NLRC where the complaints of the laborers appear to have been
dismissed…" In sum, then, the petitioner failed to prove that the private respondent breached
any of the provisions of the contract of lease. Thus, the petitioner had no valid reason to
suspend the payment of rentals under Art. 1658.
Tagbilaran Integrated Sellers Association vs. CA
Facts:
Petitioner Tagbilaran Integrated Settlers Association (TISA), is an organization founded in 1991
by individuals who have residential and business establishments in a commercial lot located at
Torralba and Parras Streets in Tagbilaran City. The lot, which has an area of 2,726 square
meters, is covered by TCT No. (142) 21047 in the name of respondent Tagbilaran Women’s
Club (TWC).

In 1986-1987, the TWC entered into separate written lease contracts for a period of one year
with individual petitioners herein, Aurelio Cirunay, Roberto Medina, Basilisa Pumares, Marietta
Lumayno, Ramon Ramos Jr., Delio Erana, Elemeterio Ale, Alangadi Sultan, Manuel Chatto, and
Cipriano Gamil.

In a letter to petitioners dated January 6, 1990, TWC demanded that they vacate the rented
premises on the following grounds: expiration of lease contracts, non-payment of rentals, and
violations of the conditions of lease including noncompliance with sanitary and building
ordinances. Another letter of demand, dated July 16, 1990, was sent to petitioners who refused
to vacate the premises, however.

On February 25, 1993, TWC entered into a lease contract on the lot with one Lambert Lim who
at once paid a total of P240,000.00 representing payment of rentals for the first twelve (12)
months. Petitioners nevertheless refused to vacate the lot, they contending that the contract of
lease between TWC and Lambert Lim is null and void because TWC impliedly extended to them
new contracts of lease when it continued collecting monthly rentals from them.

Petitioners soon filed on March 31, 1993 a petition against TWC and Lim for prohibition,
annulment of contract of lease, and damages with prayer for the issuance of a writ of
preliminary prohibitory injunction before the RTC of Tagbilaran City, Bohol.

In the meantime, petitioners consigned the monthly rentals before Branch 2 of the RTC (the trial
court). By decision of January 24, 1997, the trial court dismissed petitioners’ petition.

Issue:
Whether or not there was violation of the lease contract.

Ruling:
The lease contracts executed by TWC and petitioners in 1986/1987 were for a period of one
year. Following Article 1669 of the Civil Code, the lease contracts having been executed for a
determinate time, they ceased on the day fixed, that is, a year after their execution without need
of further demand.

While no subsequent lease contracts extending the duration of the original lease were forged, it
appears that TWC allowed petitioners to continue occupying the lot as in fact it continued to
demand, collect and accept monthly rentals. An implied new lease (tacita reconduccion) was
thus created pursuant to Article 1670 of the New Civil Code. A month-to-month lease under
Article 1687 is a lease with a definite period, hence, it is terminable at the end of each month
upon demand to vacate by the lessor. When notice to vacate dated January 6, 1990 was sent
by TWC to petitioners, followed by another dated July 16, 1990, the tacita reconduccion was
aborted. For a notice to vacate constitutes an express act on the part of the lessor that it no
longer consents to the continued occupation by the lessees of its property. The notice required
[under Article 1670] is the one given after the expiration of the lease period for the purpose of
aborting an implied renewal of the lease. As thus correctly found by the Court of Appeals, [t]he
implied lease of appellants expired upon demand made by the appellee TWC on January 1990.
From then on appellee TWC had the right to terminate the lease at the end of the term of the
impliedly renewed contracts whose expiration dates w[ere] at the end of the month of January
1990. Although appellants continued to pay rent[al]s after said date, it is clear that they no
longer have the right to continue in the possession of the subject lot because their continued
stay therein was without the consent of appellee TWC. Contrary to petitioners’ contention, 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.

As for petitioners’ contention that TWC violated Article 1654 (c) of the Civil Code when it
entered into a lease contract with Lim on February 25, 1993 without their previous consent, the
same does not lie. For after TWC notified petitioners, by letter of January 6, 1990, to vacate the
occupied premises, the implied new lease had been aborted and they, therefore, had no right to
continue occupying the lot. Their continued occupation of the premises had thus become
unlawful.

While TWC as a lessor is obliged to, under Article 1654 of the Civil Code, maintain the lessee in
the peaceful and adequate enjoyment of the lease, the obligation persist only for the duration of
the contract.
Spouses Ricardo and Elena C. Golez v. Meliton Nemeño
Facts:
Respondent is the registered owner of a commercial lot located in Molave, Zamboanga del Sur
known as Lot No. 7728 and covered by Original Certificate of Title No. 0-2,233 of the Registry of
Deeds of Zamboanga del Sur. On May 31, 1989, respondent entered into a Lease Contract over
a portion of Lot No. 7728 with petitioners as "lessees."

On May 23, 1992, the building subject of the lease contract was burned down.

Because of the destruction of the building, respondent, on May 29, 1992, sent a letter
to petitioners demanding the accumulated rentals for the leased property from March 17, 1989
to June 17, 1992 totaling P78,000.00. As the demand was left unheeded, respondent filed a
complaint for collection of rentals plus damages before the Molave RTC.

Respondent alleged that Ricardo is the proximate cause of the fire that razed the building to the
ground. He also claimed that without his knowledge, petitioners insured the building with two
insurance companies for face values of more than its cost. He further alleged that Ricardo was
charged with arson before the Municipal Trial Court (MTC) of Molave in relation to the burning of
the subject building. He prayed that petitioners be ordered to pay him P96,000.00 representing
the unpaid rentals from March 17, 1989 until the expiration of the lease and P100,000.00
representing damages for violating the lease contract. Respondent also sought the issuance of
a writ of attachment in his favor.

Petitioners, for their part, admitted the execution of the contract of lease but dispute their liability
to pay respondent rentals. They contended that under the contract of lease, the rental payment
is amortized over the cost of the subject building, thus, respondent had already become its
co-owner who must suffer the loss of his property. They also denied liability for the burning of
the building contending that it has been destroyed by a fortuitous event. They admitted though
that they insured the building beyond their insurable interest over it. By way of counterclaim,
they alleged that they extended various cash loans to respondent in the total amount of
P11,000.00 starting April 1989 with an agreed monthly interest of 5%. Because respondent
failed to pay the loan, they claimed that the total demandable amount from him is already
P39,104.00 as of the filing of their Answer. Petitioners are also demanding P1,000,000.00 in
damages from respondent for publicly imputing to them the burning of the subject building.

Trial Court’s Decision:

In a Decision dated March 16, 1998, the trial court ruled in favor of respondent. The trial court
likewise noted that petitioners have never paid respondent rent for the leased premises. Since
they can no longer deliver the building which the contract obliged them to deliver, the trial court
ruled that they are legally obliged to pay the rentals for their use and enjoyment of the leased
premises to prevent unjust enrichment on the part of petitioners.

CA’s Decision:
The CA also ruled that the fact that the building was destroyed before it was delivered to
respondent does not free petitioners from paying back rentals. It held that petitioners cannot use
respondent's land and deprive him of rents due him, otherwise, it would be a case of unjust
enrichment at the expense of respondent.

Issue:
Are petitioners liable to pay respondent for back rentals?

Ruling:
This Court finds no reason to depart from the ruling of the courts a quo that petitioners should
pay respondent for back rentals. There is no dispute that the contract entered into by the parties
is one of lease. True, it had some modifications such that instead of paying the rent in the form
of money, petitioners will withhold such payment and will apply the accumulated rent to the cost
of the building they built on the leased property. Thereafter, at the end of the lease period or
until such time the cost of the building has been fully covered by the rent accumulated,
petitioners, as lessees will transfer the ownership of said building to respondent.

Unfortunately, the subject building was gutted down by fire. However, the destruction of the
building should not in any way be made a basis to exempt petitioners from paying rent for the
period they made use of the leased property. Otherwise, this will be a clear case of unjust
enrichment. The fundamental doctrine of unjust enrichment is the transfer of value without just
cause or consideration. The elements of this doctrine are: enrichment on the part of the
defendant; impoverishment on the part of the plaintiff; and lack of cause. The; main objective is
to prevent one to enrich himself at the expense of another. It is commonly accepted that this
doctrine simply means that a person shall not be allowed to profit or enrich himself inequitably at
another's expense.

In the instant case, there is no dispute that petitioners used the property for several years for
their own benefit having operated a restaurant thereon. Therefore, it would be the height of of
injustice to deprive respondent of compensation due him on the use of his property by
petitioners. The fact that the parties agreed to a different mode of payment - in this case, a
building - does not in any way exempt petitioners from paying compensation due to respondent
for the use of the latter's property because the building was destroyed.

While we sustain the award of back rentals in favor of respondent, we do not agree with the
amount imposed by the courts a quo. Petitioners should only be liable for rent during the period
within which they were in possession of the leased property, Respondent himself testified that
petitioner Ricardo stayed in the building on the leased premises just before it was burned down.
There was no evidence submitted to prove that petitioners were in possession of the leased
property after the fire. Therefore, petitioners should be made to pay rent until that time only. To
order petitioners to pay for back rentals equivalent to the cost of the building is in the same way,
unjust enrichment this time on the part of respondent considering that the rent due for the period
petitioners occupied the leased premises is way below the cost of the building.
Spouses Modomo vs. Spouses Layug
Facts:
[Spouses Layug filed] a complaint for [e]jectment x x x before the [MeTC]. [Spouses Layug]
alleged among others that[:] they are the registered owner[s] and legal possessors of a parcel of
land located at No. 1038 A.P. Reyes Street corner Cristobal Street, Barangay Tejeros, Makati
City covered by [Transfer Certificate of Title (TCT)] No. 208683. Aforesaid property was leased
to [Spouses Modomo] for a period of seven (7) years. Pursuant to the [Contract of Lease[5]
dated February 11, 2005 (Contract of Lease), Spouses Modomo agreed to] pay the amount of
Php170,000.00 as monthly rentals subject to an escalation of 10% for the second and third
year, 15% on the fourth and fifth year and 20% on the sixth and seventh year. It was also
agreed by the parties that real estate taxes on the property shall be paid by [Spouses Modomo].
In view of [these] stipulation[s], an Addendum to the Contract was executed by the parties [also]
on February 11, 2005 regarding the terms and conditions of payment of rentals. Subsequently,
[Spouses Modomo] defaulted in the payment of the escalation of [rental fees] commencing from
the year 2006 up to [the filing of the complaint for ejectment on Jury 23, 2008]. [Spouses
Modomo] also failed to pay their rentals for the year 2008 which would have been paid in
advance. [Spouses Layug] also alleged, that [Spouses Modomo] failed to pay the real estate
taxes due on the property x x x which [Spouses Layug] paid in [Spouses Modomo's] behalf.
[Spouses Layug sent a] letter x x x to [Spouses Modomo] [demanding that they] settle their
unpaid monthly rentals x x x but to no avail. Ultimately, [a] letter dated March 24, 2008 was sent
to [Spouses Modomo] terminating the [C]ontract [of Lease] and containing therein a demand for
[Spouses Modomo] to vacate the premises. To thresh out the matter, the case was referred to
the Barangay of Tejeros for conciliation but to no avail. Hence, a certification to file action was
issued. To protect [their] interest, [Spouses Layug] instituted the present suit claiming that
[Spouses Modomo] should vacate the premises, x x x pay [Spouses Layug] rental arrearages,
attorney's fees and costs of suit.

On the contrary[, Spouses Modomo] argued that[: the] parties originally agreed that [Spouses
Modomo w]ould pay the amount of Php170,000.00 subject to an escalation of 10% for the
second and third year, 15% on the fourth and fifth year and 20% on the sixth and seventh year.
However, considering that [Jocelyn] Modomo [had] introduce [d] improvements thereon[,] she
[asked] [Spouses Layug] to change certain provisions in the Contract of Lease. Based on their
conversation[,] [Spouses Layug] agreed to reduce the monthly rentals to Php150,000.00 and
the non-imposition of the escalation clause and the real estate tax provision. [Spouses Modomo]
religiously paid the rentals strictly in accordance with their subsequent agreements. [Spouses
Layug], on the second year of the [C]ontract [of Lease], imposed the 10% escalation x x x.
[Spouses Modomo] however, reminded [Spouses Layug] of their previous agreement regarding
the non-imposition of the escalation clause and the real estate tax provision. Thereafter,
[Spouses Modomo] alleged that [Spouses Layug agreed not to] impose the escalation clause
[in] the [C]ontract of [L]ease in view of the introduction of the improvements in the premises
amounting to approximately Two Million pesos [Php2,000,000.00]. Again [i]n 2008[, Spouses
Layug] [purportedly] reneged on their agreements by imposing the escalation clause. Therefore,
[Spouses Modomo] pray[ed] that the case be dismissed because the [C]ontract of [L]ease dated
February 11, 2005 ha[d] been amended by the subsequent oral agreements between the
parties. [Spouses Modomo further claimed that Spouses Layug] are in estoppel in pais, [due to]
their unconditional acceptance of the reduced x x x monthly [rental] x x x of Php150,000.00
instead of Php170,000.00. [Spouses Modomo] also alleged that the [C]ontract of [L]ease has
been novated in view of the subsequent oral agreements of the parties. Hence, [Spouses
Modomo] pray[ed] for the dismissal of the case and [that] they be [declared] entitled to their
counterclaim.

MeTC’s Decision:
On July 20, 2009, the MeTC issued a Decision in favor of Spouses Layug.

RTC’s Decision:
RTC affirmed the findings of the MeTC in toto. Like the MeTC, the RTC also harped on the
Parole Evidence Rule set forth in Rule 130 of the Rules of Court and held that if the parties' real
intention was to "cancel" the original Contract of Lease, they should have executed a new
Contract of Lease expressing "their intention to eliminate the stipulation[s] regarding the
escalation clause and the provision on real estate tax." The RTC also noted that while Spouses
Layug accepted Spouses Modomo's monthly rental payments in the reduced amount of
Php150,000.00 without escalation, they did not do so unconditionally. As basis, the RTC cited
Spouses Layug's letters dated December 7, 2006, February 6, 2007 and January 9, 2008
objecting to Spouses Modomo's deficient payments.

CA​ affirmed the decision of RTC.

Issues:
1. Whether the provisions of the Contract of Lease governing rental fees, escalation and
real estate tax payment have been partially novated by the parties' alleged subsequent
verbal agreement;
2. Whether the principle of estoppel in pais applies so as to preclude Spouses Layug from
denying the partial novation of the Contract of Lease;
3. Whether Spouses Modomo are entitled to reimbursement for useful improvements made
upon the leased property.

Rulings:
1. While the Civil Code permits the subsequent modification of existing obligations, these
obligations cannot be deemed modified in the absence of clear evidence to this effect. Novation
is never presumed, and the animus novandi, whether total or partial, must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.
The modification of the monthly rental fee through the parties' subsequent verbal agreement is
confirmed by the evidence on record, and Spouses Layug's own submissions. The records are
replete with evidence confirming the modification of the monthly rental fee through the
subsequent verbal agreement of the parties. In fine, it may be true that the rental rate of
[Php]170,000.00 was modified by the parties and a novation of the principal condition of the
[C]ontract of [L]ease was thereby effected, nevertheless, such a modification did not render the
[C]ontract of [L]ease as totally extinguished but rather[,] merely modified. In fine, all other
conditions of the contract[,] including the escalation clause on the monthly rental rate and the
proportional payment of real property taxes and assessments by [Spouses Modomo] remain
valid and subsisting. While the records bear sufficient evidence to show the subsequent
modification of the monthly rental fee, no similar evidence exists on record to warrant the
non-imposition of the provisions on annual escalation and proportional payment of real estate
tax. If the parties truly intended to further modify the Contract of Lease by deleting the
provisions on escalation and proportional payment of real estate tax, they would have done so
through another written document, as they have consistently done with all modifications relating
to such matters. It must be stressed that unlike the modification of the monthly rental fee which
is supported by several pieces of documentary evidence and confirmed by Spouses Layug's
own submissions, the modification of the provisions on annual escalation and proportional
payment of real estate tax is supported solely by Spouses Modomo's own self-serving
statements.

2. Estoppel does not apply. Estoppel in pais arises when one, by his acts, representations or
admissions, or by his own silence when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such other rightfully relies and
acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence
of such facts. For the principle of estoppel in pais to apply, there must be: (i) conduct amounting
to false representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (ii) intent, or at least expectation that this conduct shall be
acted upon, or at least influenced by the other party; and (iii) knowledge, actual or constructive,
of the actual facts. Based on the records, Spouses Layug served upon Spouses Modomo
several letters dated December 7, 2006, February 6, 2007 and January 9, 2008 expressing their
objection to the latter's deficient payments. These letters belie Spouses Modomo's imputation of
silence and acquiescence on the part of Spouses Layug. It can hardly be said that Spouses
Layug falsely conveyed their acquiescence to Spouses Modomo's deficient payments through
silence, there being no "silence" to speak of.

3. Spouses Modomo are not entitled to reimbursement for the cost of improvements made on
the leased property. Suffice it to state that Spouses Modomo have, by their own acts, deprived
the Spouses Layug of the option to appropriate the improvements made upon the leased
premises by causing their demolition. Notably, Spouses Modomo did not dispute that they had
"vacated the leased premises [and] left no single piece of wood or materials on the premises
[and] demolished everything." Hence, they are precluded from seeking reimbursement for
improvements that are now inexistent.
Booklight, Inc. vs. Tiu,
Facts:
On February 13, 2003, Rudy O. Tiu (respondent) filed a case for Collection of Sum of Money,
Damages, Attorney's Fees, Litigation Expenses and Attachment against Booklight, Inc.
(petitioner) before the Regional Trial Court (RTC) of Butuan City. The complaint alleged that
petitioner entered into a contract of lease with respondent for a space in respondent's building to
be used for petitioner's bookstore business. The lease was for five years, which expired on
September 1, 2001. It was never renewed upon expiration although petitioner continued to
occupy the premises until its business operations ceased on February 28, 2003. Alleging unpaid
rentals from December 2001, respondent filed the said complaint. Respondent's application for
the issuance of a writ of attachment was granted by the RTC. Thus, petitioner's personal
properties in the bookstore were attached and its funds in Rizal Commercial Banking
Corporation were garnished. In its Answer with Compulsory Counterclaim, petitioner alleged
that there was no prior demand made by respondent and that it fully paid its rentals up to July
2002, among others. On April 24, 2009, the RTC rendered a Decision in favor of respondent.
On appeal, the CA affirmed the RTC's Decision

Issues:
1) whether or not there was an advanced rental and deposit amounting to P109,440.00
2) if there was, whether or not this amount was already refunded or considered in the
computation of the unpaid rentals

Ruling:
The fact that petitioner, for being declared non-suited, was not able to present evidence to
support its claims is surely fatal to its case. The records are bereft of any evidence to support
petitioner's claim that it paid advanced rental and deposit and that the same have not yet been
refunded or utilized; nor was there any record to definitely show that the subject electric bills
pertain only to a month when petitioner was not occupying the premises anymore.

Therefore, for lack of basis, this Court finds no cogent reason to deviate from the findings of the
RTC, as affirmed by the CA, on the matters of rentals and electric bills.
D.M. Ragasa Enterprises, Inc. vs. Banco de Oro, Inc
Facts:
On January 30, 1998, Ragasa and then Equitable Banking Corporation (Equitable Bank)
executed a Contract of Lease (Lease Contract), as lessor and lessee, respectively, over the
ground and second floors of a commercial building located at 175 Tomas Morato Avenue corner
Scout Castor, Quezon City (subject premises), for a period of five years, commencing on
February 1, 1998 up to January 31, 2003, with a monthly rental of P122,607.00. Pursuant to the
Lease Contract, Equitable Bank paid the amounts of P367,821.00 representing three months
advance rentals, and P367,821.00 representing three months rentals as security deposit.

Meanwhile, Equitable Bank entered into a merger with Philippine Commercial International Bank
(PCI Bank) thereby forming Equitable PCI Bank, Inc. The latter would eventually, pending the
present case, merge with Banco de Oro, Inc. to form the respondent bank.

As a result of the merger, the bank closed and joined the branches of its constituent banks
which were in close proximity with each other as maintaining said branches would be
impractical. One of the branches which had to be closed is the branch located in the subject
premises.

For this reason, the bank sent a notice dated May 28, 2001, informing Ragasa that the former
was pre-terminating their Lease Contract effective June 30, 2001 (Notice of Pre-termination).
Ragasa responded with a demand letter dated June 20, 2001 for payment of monthly rentals for
the remaining term of the Lease Contract from July 1, 2001 to January 31, 2003 totaling
P3,146,596.42, inasmuch as there is no express provision in the Lease Contract allowing
pre-termination. The bank countered, through a letter dated June 26, 2001, that its only liability
for pre-terminating the contract is the forfeiture of its security deposit pursuant to item 8(m) of
the Lease Contract. On June 30, 2001, the bank vacated the subject premises without heeding
Ragasa's demand for payment.

After sending two more reiterative demand letters, which were both ignored by the bank,
Ragasa finally filed on March 11, 2002 with the RTC the Complaint for Collection of Sum of
Money (amounting to P3,146,596.42 representing the monthly rentals under the Lease Contract
for the period July 1, 2001 to January 31, 2003) and Damages. Ragasa argued that under the
Lease Contract, the forfeiture of the bank's security deposit does not exempt it from payment of
the rentals for the remaining term of the lease because the bank's act of pre-terminating the
contract was a major breach of its terms. Moreover, item 8(m) expressly provides that the
security deposit shall not be applied to the rentals.

In its Answer filed on April 26, 2002, the bank argued, in gist, that item 8(m) of the Lease
Contract is actually a penalty clause which, in line with Article 1226 of the Civil Code, takes the
place of damages and interests in case of breach. Hence, for breaching the Lease Contract by
pre-terminating the same, the bank is liable to forfeit its security deposit in favor of Ragasa but
would not be liable for rentals corresponding to the remaining life of the Contract. Moreover, the
bank is not liable for the penalty at the rate of 3% under item 8(n) of the Lease Contract
because the bank paid the due rentals up to the time it pre-terminated the same.

RTC’s Decision:
The RTC ruled in Ragasa's favor in a Decision dated April 4, 2006. The RTC held that the bank
may not unilaterally pre-terminate the Lease Contract; hence, it is still liable to pay the rentals
for the remaining duration of the said contract. Likewise, in addition to item 8(m) of the Lease
Contract providing for the forfeiture of the bank's security deposit, item 8(n), another penalty
clause providing for additional 3% of the monthly rental for each month of delay in payment,
also applies.

CA’s Decision:
In the questioned Decision dated March 27, 2009, the CA granted the bank's appeal and
reversed and set aside the RTC's ruling. The CA ruled that the bank's failure to continue the
Lease Contract until its expiration constituted a breach of its provision. As such, the Lease
Contract was automatically terminated by virtue of item 8(p) thereof providing for its outright
termination in case of breach of any of its provisions. Hence, there is no legal basis to hold the
bank liable for payment of rentals for the unexpired period of the contract. However, the bank is
liable to forfeit its security deposit pursuant to the penalty clause under item 8(m) of the
contract. The CA ruled that to allow Ragasa to collect the value of the unexpired term of the
lease plus penalty would constitute unjust enrichment.

Issue:
What is the liability of the bank, if any, for its act of pre-terminating the Lease Contract?

Ruling:
In the case at bar, there is no question that the bank breached the Lease Contract. When it
served upon Ragasa the Notice of Pre-termination effective June 30, 2001 and when it, indeed,
vacated the subject premises on said date, the bank, in effect, breached item 2 of the Lease
Contract, providing for a five-year term. It must be noted that the Lease Contract does not
contain a pre-termination clause.

The Lease Contract has a specific provision in case of non-compliance of its "Term" — "a period
of five (5) years, commencing on February 1, 1998," to wit:
8. The TENANT voluntarily binds himself and agrees to the following without any coercion or
force by the LESSOR;
m) The full deposit shall be forfeited in favor of the LESSOR upon non-compliance of the Term
of the Contract of Lease by the TENANT, and cannot be applied to Rental;

The word "term" appears only in three instances, but in three forms, in the five-page Lease
Contract. Firstly, "TERM" (a defined word as the letters are all capitalized) is used in item 2, as
quoted above, to indicate the five-year period of the lease. Secondly, "Term" is used in item
8(m), as quoted above, and being with a capitalized initial letter it also indicates that it is a
defined word. Lastly, it is provided in item 8(g) that the lessee voluntarily binds itself and agrees:
"To pay from time to time, during the term of this Lease, all expenses such as salaries, wages,
etc., if for business, all charges for telephone if any, and/or any such other services in the
Leased Premises."Given the fact that in item 2 and item 8(g), the words "TERM" and "term"
definitely refer to the period of the lease, the word "Term" in item 8(m) should likewise be
understood to have the same meaning.

The word "Term" could not mean stipulation, provision, condition, covenant or clause as the
word "term" can also be understood. In the default clauses of the Lease Contract, i.e., items 8(p)
and 10, the word employed is "provisions." It is the word "provisions" which the parties intended
to refer to any stipulation, condition, covenant or clause and not the word "term."

Consequently, the correct interpretation of the word "Term" in item 8(m) is that it refers to the
period of the lease, and not to any other provision of the Lease Contract.

Thus, having contravened the tenor of the Lease Contract regarding its term or period, the bank
should be liable for damages. However, how much in damages should the bank be liable?

Generally, if the lessor or the lessee should not comply with their obligations, the aggrieved
party may ask for either the rescission of the contract and indemnification for damages, or only
the latter, allowing the contract to remain in force.

In the present case, there is an express stipulation in item 8(p) of the Lease Contract that
"[b]reach or non-compliance of any of the provisions of this Contract, especially non-payment of
two consecutive monthly rentals on time, shall mean the termination of this Contract."

Pursuant to the automatic termination clause of the Lease Contract, which is in furtherance of
the autonomy characteristic of contracts, the Lease Contract was terminated upon its
unauthorized pre-termination by the bank on June 30, 2001. Ragasa is, thus, precluded from
availing of the second option which is to claim damages by reason of the breach and allow the
lease to remain in force. With the lease having been automatically resolved or terminated by
agreement of the parties, Ragasa is entitled only to indemnification for damages.

To force either party to continue with a contract that is automatically terminated in case of its
breach by either party (pursuant to its express provision) is not in furtherance of or sanctioned
by the contract. Rather, it is a contravention thereof and it negates the autonomy characteristic
of contracts.

Is the claim of Ragasa that it is entitled to damages in the amount of P3,146,596.42,

representing the monthly rentals from July 1, 2001 to January 31, 2003, or the unexpired period
of the lease, valid?

Entitlement to rentals after the termination of the lease pursuant to an automatic rescission or
termination clause is possible in the case where the lessor invokes the clause and the lessee
refuses to vacate the leased premises. The lessee will be liable for damages equivalent to the
rentals for the duration of its possession from the termination of the lease until he vacates the
premises. That is, however, not the situation here. The bank did not continue to possess the
Leased Premises after its automatic termination, as it vacated the same on June 30, 2001. As
explained above, the provision or clause that is applicable in case of non-compliance of the
Term or period of the Lease Contract is item 8(m) which mandates that the full deposit of
P367,821.00 or the equivalent of three months rentals shall be forfeited with the proviso that the
deposit cannot be applied to rental. This proviso as to non-application to rental of the deposit
means that the forfeiture is without prejudice to the payment of any unpaid rental at the time of
the non-compliance or breach of the Term or period of the Lease Contract. Since the bank had
no unpaid rental as of June 30, 2001, the proviso finds no application in the present case.

There is nothing in the Lease Contract which provides that the bank can exempt itself from the
performance of any provision therein, including the Term or period, by simply paying the
penalty. Items 8(m) and 10 do not contain any such exemption.

As discussed above, Ragasa cannot insist on the performance of the lease, i.e., for the lease to
continue until expiration of its term, because the lease has been automatically terminated when
the bank breached it by pre-terminating its terms. Thus, Ragasa is only entitled to damages.

That said, that is, even as items 8(m) and 10 are considered strictly penal or punishment,
Ragasa, as the injured party, is nonetheless required to prove the "other damages" that it
actually suffered before it can be entitled thereto. However, a review of the records shows that
Ragasa presented nothing. Ragasa simply insisted that the bank should be liable for the amount
representing the monthly rentals from July 1, 2001 up to January 31, 2003 or the unexpired term
of the Lease Contract, equivalent to P3,146,596.42. Ragasa did not adduce any evidence to
support its claim that it actually suffered damages of such amount in terms of lost income. In this
regard, it must be emphasized that Ragasa could have leased the Leased Premises as early as
July 1, 2001 because the bank had completely vacated the same as of June 30, 2001. That
Ragasa chose not to lease the Leased Premises and not earn any rental therefrom in the
meantime that its complaint for damages against the bank was being litigated was its own
decision and doing.

In conclusion, the Court rules that Ragasa is not entitled to the rental for the unexpired period of
the Lease Contract, and it is only entitled to the forfeiture of the full deposit pursuant to item
8(m) and P15,000.00 as attorney's fees pursuant to item 10.
Mulle vs. Philippine National Bank
Facts:
[S]pouses Fritz and Thelma Muller are the occupants of two (2) parcels of land with
improvements located at Abeto Subdivision, Brgy. Sta. Rosa, Manduriao, Iloilo City owned by
[Philippine National Bank (PNB)] with an aggregate area of 1,250 sq. meters. On May 26, 1987,
[PNB] informed the [Mullers] that their lease x x x will expire on June 1, 1987; that they had
rental arrears for two and a half years amounting to PhP18,000.00.

Seeking [to renew the lease contract for] another year, Fritz Muller wrote to PNB proposing to
buy] the subject properties. [PNB] denied the request for renewal of the lease on June 13, 1987.

On October 2, 1987, [PNB Iloilo] informed x x x Fritz that his x x x offer to purchase the [subject
properties] was not given due course by the Head Office.

On [March 17, 1988, [PNB] demanded for [the Mullers] to vacate the subject properties within
fifteen (15) day[s] from the said date, in view of the expiration of the lease. The demand fell [on]
deaf ears. Due to continued occupation of the [Mullers, PNB] x x x sent its final demand letter
dated July 17, 2006, demanding [from] them the payment [of] the rental arrears from June 1984
up to June 1, 2006. [The Mullers] failed to pay due attention to the written demands against
them which [prompted PNB] to institute a Complaint for Ejectment. MTC rendered judgement in
favor of PNB.

RTC’s Ruling:
In its June 2, 2008 Decision, the RTC declared that the reckoning point from which a claimant in
an unlawful detainer case, in this case, the PNB, may invoke the accrual of its claims is the date
of receipt of last demand; that the MTCC cannot take judicial notice of the fair rental value of the
subject properties; and that prescription is applicable to the case. It decreed that:
The receipt of the demand letter dated June 17, 2006 is the date when [the Mullers] became
deforciant for which it can be assessed rental. While [PNB] may be entitled to a reasonable
compensation from the period [the Mullers] have been in possession of the property prior to
receipt of the June 17, 2006 demand letter, the same cannot be awarded in an unlawful detainer
suit. In unlawful detainer actions, only rental reckoned from date of receipt of last demand may
be awarded.

CA’s Decision:
On October 30, 2013, the CA issued the assailed Decision, decreeing that (1) contrary to the
RTC ruling, reasonable compensation for the use and occupancy of the subject properties
should be reckoned from receipt of initial demand and not receipt of last demand; (2)
prescription does not apply hence PNB can collect rentals which accrued prior to receipt of last
demand; and (3) the MTCC properly fixed the rental value of the subject properties

Issues:
whether respondent PNB is entitled to rentals in arrears prior to July 17, 2006 and whether its
claims therefor have prescribed.
Petitioner’s arguments:
Petitioners contend that the award of rentals should be reckoned from the time of receipt of the
latest demand - July 17, 2006 - and not prior demands; that prior to said last or latest demand,
PNB had no right to collect rent, since it is only after receipt of the latest demand that they may
be considered illegal occupants of the bank's property and thus obligated to pay rent; that prior
to said latest or last demand, their possession of the subject properties may be said to have
been tolerated by PNB, and as such, they were "not required to pay the rent within the period
prior to their receipt of the latest demand to vacate"; that PNB's claim for the collection of rentals
in arrears has prescribed, in that more than 10 years have elapsed since 1987 - the date of the
written lease agreement - before PNB filed the ejectment case in 2007; and that even PNB's
claim for rentals in arrears after the expiration of the written lease agreement in 1987 has
prescribed, since actions arising from written contracts prescribe in 10 years, while that for oral
contracts prescribe in six years.

Respondent’’s arguments:
that as owner, it is entitled to reasonable compensation for petitioners' continued use and
occupation of its properties, which thus prevented it from enjoying the same as well as the fruits
thereof; that petitioners' occupation was not by mere tolerance, since there was an oral lease
agreement between them, and for this reason they must pay rent; and that petitioners' claim of
prescription is unavailing to prevent it from recovering damages and rentals in arrears, because
there is a continuing lease agreement between the parties all throughout the period in issue,
and because the amount demandable and recoverable from a defendant in ejectment
proceedings, regardless of its denomination as rental or reasonable compensation or damages,
flows from the detainer or illegal occupation of the property involved and is merely incidental
thereto.

Ruling:
Under Article 1670 of the Civil Code, "[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." Thus, when
petitioners' written lease agreement with respondent expired on June 1, 1987 and they did not
vacate the subject properties, the terms of the written lease, other than that covering the period
thereof, were revived. The lease thus continued. In this sense, the prescriptive periods cited by
petitioners - as provided for in Articles 1144 and 1145 of the Civil Code - are inapplicable. As far
as the parties are concerned, the lease between them subsisted and prescription did not even
begin to set in.

Even then, it can be said that so long as petitioners continued to occupy the subject properties -
with or without PNB's consent - there was a lease agreement between them. They cannot
escape the payment of rent, by any manner whatsoever. First of all, given the circumstances
where liberality is obviously not present and was never a consideration for the lease contract,
petitioners cannot be allowed to enjoy PNB's properties without paying compensation therefor;
this would be contrary to fundamental rules of fair play, equity, and law. Basically, Article 19 of
the Civil Code states that "[e]very person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith," and Article 20 provides that "[e]very person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the latter for the same."

Secondly, even when the parties' lease agreement ended and petitioners failed or refused to
vacate the premises, it may be said that a forced lease was thus created where petitioners were
still obligated to pay rent to respondent as reasonable compensation for the use and occupation
of the subject properties. Indeed, even when there is no lease agreement between the parties,
or even when the parties ​ occupant and property owner - are strangers as against each other,
still the occupant is liable to pay rent to the property owner by virtue of the forced lease that is
created by the former's use and occupation of the latter's property.
There is no question that after the expiration of the lease contracts which respondent contracted
with Aniana Galang and BPI, she lost her right to possess the property since, as early as the
actual expiration date of the lease contract, petitioners were not negligent in enforcing their right
of ownership over the property.

At the outset, it should be recalled that there existed no consensual lessor​-lessee relationship
between the parties. At most, what we have is a forced lessor​-lessee relationship inasmuch as
the respondent, by way of detaining the property without the consent of herein petitioners, was
in unlawful possession of the property belonging to petitioner spouses.

Indeed, petitioners' obstinate refusal to pay rent and vacate the subject properties, and their
insistence that respondent sell the same to them but without meeting respondent's price, is an
underhanded maneuver that unduly tied respondent's hand and deprived it of the use and
enjoyment of its properties. This is tantamount to holding the properties hostage and forcing
respondent to accede to whatever petitioners desired. This practice cannot be sanctioned; on
the contrary, it must be condemned.

The CA is thus correct in ruling that petitioners "should be made liable for damages in the form
of rent or reasonable compensation for the occupation of the properties not only from the time of
the last demand but starting from the time they have been occupying the subject properties
without paying for its rent." Suffice it to state that, as correctly cited by respondent, "the amount
demandable and recoverable from a defendant in ejectment proceedings regardless of its
denomination as rental or reasonable compensation or damages, flows from the detainer or
illegal occupation of the property involved and x x x is merely incidental thereto."