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[G.R. No. 113626. September 27, 2002.]




Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to review and set aside the decision of the Court of Appeals promulgated on January 26, 1994 in CA-G.R. SP No. 27312 1 which reversed the decision of the Regional Trial Court in Civil Case No. 91-57757 2 and reinstated the Metropolitan Trial Court rulings in Civil Case No. 134022-CV, entitled, "Jespajo Realty Corp., Plaintiff, v. Tan Te Gutierrez and Co Tong, Defendants." 3

The uncontroverted facts of the case as found by the Court of Appeals are as follows:chanrob1es virtua1 1aw 1ibrary

"The subject of this controversy is an apartment building located at 619 Asuncion Street, Binondo, Manila and owned by Jespajo Realty Corporation. On February 1, 1985, said corporation, represented by its President, Jesus L. Uy, entered into separate contracts of lease with Tan Te Gutierrez and Co Tong. . . . Pursuant to the contract, Tan Te occupied room No. 217 of the subject building at a monthly rent of P847.00 while Co Teng occupied the Penthouse at a monthly rent of P910.00 . . . The terms of the contract among others are the following:chanrob1es virtual 1aw library

`PERIOD OF LEASE — The lease period shall be effective as of February 1, 1985 and shall continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals. The LESSEE may, at his option, terminate this contract any time by giving sixty (60) days prior written notice of termination to the LESSOR.

`However, violation of any of the terms and conditions of this contract shall be a sufficient ground for termination thereof by the LESSOR.

‘x       x       x

`RENT INCREASE — For the duration of this contract, the LESSEE agrees to an automatic 20% yearly increase in the monthly rentals.’

"Since the effectivity of the lease agreement on February 1985, the lessees religiously paid their respective monthly rentals together with the 20% yearly increased (sic) in the monthly rentals as stipulated in the contract. On January 2, 1990, the lessor corporation sent a written notice to the lessees informing them of the formers’ intention to increase the monthly rentals on the occupied premises to P3,500.00 monthly effective February 1, 1990. The lessees through its counsel in a letter dated March 10, 1990 . . . manifested their opposition alleging that the same is in contravention of the terms of the contract of lease as agreed upon. Due to the opposition and the failure of the lessees to pay the increased monthly rentals in the amount of P3,500.00, the lessor through its counsel in a letter dated April 10, 1990 . . . demanded that the lessees vacate the premises and pay the amount of P7,000.00 corresponding to the months of February and March, 1990.

"The lessees exerted effort to pay the rentals due for the months of February and March 1990 at the monthly rate stipulated in the contract but was refused by the lessor so that on May 2, 1990, they instituted before the Metropolitan Trial Court of Manila, Branch 16 a case for consignation . . .

"In the said complaint, plaintiffs alleged that the amount of P2,107.60 and P2,264.40 are the monthly rental obligations of Tan Te and Co Tong respectively. They sought to consign with the court their monthly rental obligations at the rate above mentioned for the months of February up to April 1990. Additionally, they prayed that the court issue an order directing the defendant to honor the terms and conditions of the lease.

"It is to be noted that on February 6, 1991, the trial judge in the consignation case issued an order allowing the plaintiffs therein to deposit with the City Treasurer of Manila the amount of P33,480.28 for Co Tong and the amount of P32,710.32 for Tan Te Gutierrez representing their respective rentals for thirteen (13) months from February, 1990 to January, 1991. This order however is without prejudice to the final outcome of the case. Plaintiffs duly complied with the order as evidenced by an official receipts (sic) . . . in the name of Tan Te Gutierrez and Co Tong, respectively, issued by the City Treasurer on February 11, 1991.

"On November 15, 1990, or more than six (6) months from the filing of the case for consignation, the lessor instituted an ejectment suit against the lessees before the Metropolitan Trial Court of Manila Branch 20 . . . The court in its decision dated May 10, 1991 rendered a decision dismissing the ejectment suit for lack of merit. . ." 4

Portions of the MTC decision read:jgc:chanrobles.com.ph

"Furthermore, it appears that the plaintiff realizing that it had virtually surrendered certain aspects of its rights of ownership over the subject premises in stipulating that the lease ‘shall continue for an indefinite period provided the LESSEE is up-to-date in the payment of his monthly rentals’, has raised the monthly rental to P3,500.00 which is much higher than the correct rental in accordance with their stipulated 20% automatic increase annually. This was done by the plaintiff apparently in order to create an artificial cause of action, as when the LESSEES would refuse, as in fact they refused, to pay the monthly rentals at the increase rate. This pretext of the plaintiff cannot be countenanced by law.

"Anent the final issue as to whether or not the defendants are already in arrears in the payment of rentals on the premises, it is noteworthy that the instant case for Unlawful Detainer was filed by the plaintiff-LESSOR herein only on November 15, 1990, while the LESSEES’ consignation case against the LESSOR-plaintiff herein based on the latter’s refusal to accept the rentals have been pending with Branch XVI of this Court since May 2, 1990. And, in accordance with the consignation case, the LESSEES, upon proper motion approved by the Court, deposited the amounts of "P33,480.28 covered by O.R. No. B-578503 (for CO TONG) and P32,710.32 covered by O.R. B-578502 (for TAN TE GUTIERREZ) both receipts dated February 11, 1991.

"IN VIEW OF THE FOREGOING, and after careful scrutiny of the entire record including all documentary evidence adduced by both parties, this Court is of the opinion and so holds that the plaintiff (Jespajo Realty Corporation) has failed to establish its claims by preponderance of evidence.

"WHEREFORE, this case is hereby dismissed for utter lack of merit. The counterclaim is likewise dismissed for lack of evidence to support the same. No pronouncement as to costs.


Jespajo Realty Corporation then appealed to the Regional Trial Court which ruled in its favor, thus:jgc:chanrobles.com.ph

"The Court is fully convinced that the sum demanded by appellant as increase in appellees monthly rentals to the premises which they are renting from appellant is very reasonable considering that the leased premises are located in the commercial and business section of Manila in Binondo. It is also undisputed that appellant has a 24-hour security unit over the property as well as parking spaces and provisions for electricity, water and telephone services.

"In the light of the foregoing, the Court is constrained to reverse the appealed decision and hereby orders another judgment to be entered in favor of Appellant.

"WHEREFORE, PREMISES CONSIDERED, judgment is rendered as follows:jgc:chanrobles.com.ph

"1. Reversing the decision of the court a quo insofar as it dismissed appellant’s complaint;

"2. Declaring the termination or revocation [of the] lease contracts Annexes ‘A’ and ‘A-1’, Complaint executed between appellant and appellees;

"3. Ordering appellees, their heirs and all other persons acting for and in their behalf to vacate and surrender immediately the lease premises to appellant;

"4. Adjudging appellees to pay unto appellant their rental arrearages of P57,426.45 for appellee (Tan Te Gutierrez) and P56,153.75 for appellee (Co Tong) as of April 30, 1991 and thereafter each appellee is ordered to pay also appellant the sum of P3,500.00 every month starting May 1, 1991 until they shall have fully vacated and surrendered the leased premises;

"5. Appellees are likewise adjudged to pay the sum of P10,000.00 as and for attorney’s fees, and

"6. The costs of suit.


However, said RTC decision was reversed by the Court of Appeals in the herein assailed decision, portions of which read:jgc:chanrobles.com.ph

"Be that as it may, We find that it was the private respondent who, in fact, violated the lease agreement by charging petitioners a monthly rental of P3,500.00, well in excess of the rental stipulated in the lease contract. We see in the refusal of private respondent to accept the rental being offered by petitioners, a scheme to place petitioners in default of their rental payments. However, said scheme was waylaid by petitioners’ consignation of the rentals due from them.

"In view of the foregoing discussion, We find no more necessity in discussing the last two (2) errors raised in the petition. We likewise find that the respondent court committed an error of fact and law in reversing the decision of the Metropolitan Trial Court of Manila and in arriving at the decision under review.

"WHEREFORE, the decision under review is hereby REVERSED and SET ASIDE. The decision dated May 10, 1991 of the Metropolitan Trial Court of Manila, Branch XX which dismissed Civil Case No. 134022 — CV for lack of merit is hereby REINSTATED. No pronouncement as to costs.


Petitioner comes before this Court with the following questions:chanrob1es virtual 1aw library





Petitioner claims that the contracts of lease entered into between the petitioner and private respondents did not provide for a definite period, hence, Art. 1687 of the New Civil Code applies. Said Article reads:jgc:chanrobles.com.ph

"Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month."cralaw virtua1aw library

Petitioner cited Yek Seng Co. v. Court of Appeals, 9 where this Court held that:" [c]onformably, we hold that as the rental in the case at bar was paid monthly and the term was not expressly agreed upon, the lease was understood under Article 1687 of the Civil Code to be terminable from month to month." 10

On the premise that the lease contract was effective on a monthly basis, petitioner claims that the contract of lease with respondent has been terminated, without being renewed, after respondents refused to comply with the increased monthly rate of P3,500.00 and that this refusal even after receiving a notice of termination and a final demand letter is a valid cause of action for unlawful detainer. 11

As to the second issue, petitioner argues that the Court of Appeals erred in ruling that their allegation of respondents’ non-payment of rentals in the complaint for ejectment was false. Petitioner insists that when it filed the case of ejectment, private respondents had failed and refused to pay the demanded P3,500.00 monthly rentals. Thus, petitioner correctly alleged non-payment of this rental as another ground for ejectment aside from the basic allegation of termination of the lease contract. Petitioner also contends that the issue of whether or not the P3,500.00 monthly rental should be the correct rental to be paid by the private respondents cannot properly be determined in the consignation case earlier filed by private respondents since the issue can be resolved only in the ejectment case. 12

Crucial in the resolution of this case is the construction of the lease agreement, particularly the portion on the period of lease, which reads:jgc:chanrobles.com.ph

"PERIOD OF LEASE — The lease period shall be effective as of February 1, 1985 and shall continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals. . ."cralaw virtua1aw library

Petitioner insists that the subject contract of lease did not provide for a definite period hence it falls under the ambit of Art. 1687 of the NCC, making the agreement effective on a month-to-month basis since rental payments are made monthly.

The Court of Appeals opined otherwise. It reasoned that the application of Art. 1687 in this case is misplaced because ‘when there is a fixed period for the lease, whether the period be definite or indefinite or when the period of the lease is expressly left to the will of the lessee, Art. 1687 will not apply’13 , citing Eleizagui v. Manila Lawn Tennis Club, 2 Phil 309.

We agree with the ruling of the Court of Appeals. Art. 1687 finds no application in the case at bar.

The lease contract between petitioner and respondents is with a period subject to a resolutory condition. The wording of the agreement is unequivocal: "The lease period . . . shall continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals." The condition imposed in order that the contract shall remain effective is that the lessee is up-to-date in his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong religiously paid their rent at the increasing rate of 20% annually. The agreement between the lessor and the lessees are therefore still subsisting, with the original terms and conditions agreed upon, when the petitioner unilaterally increased the rental payment to more than 20% or P3,500.00 a month.

Petitioner cites Puahay Lao v. Suarez 14 where it said that "the Court in the earlier case of Singson v. Baldomar, 15 rejected the theory that a lease could continue for an indefinite term so long as the lessee paid the rent, because then its continuance and fulfillment would depend solely on the free and uncontrolled choice of the tenant between continuing to pay rentals or not, thereby depriving the lessors of all say in the matter as it would be contrary to the spirit of Article 1256 of the Old Civil Code, now Article 1308 of the New Civil Code of the Philippines which provides that validity or compliance of contracts can not be left to the will of one of the parties." 16

A review of the Puahay and Singson cases shows that the factual backgrounds therein are not the same as in the case at bar. In those cases, the lessees were actually in arrears with their rental payments. The Court, in the Puahay case, ruled that the lessor had the right to terminate the lease under par. 3, Art. 1673 of the Civil Code, declaring that the lessor may judicially eject the lessee for violation of any of the conditions agreed upon in the contract. 17 In the case of Singson, the lease contract was expressly on a month-to-month basis.

The contention of the petitioner that a provision in a contract that the lease period shall subsist for ‘an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals’ is contrary to Art. 1308 of the Civil Code is not plausible. As expounded by the Court in the case of Philippine Banking Corporation v. Lui She: 18

"We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v. Uy Tieng Piao. 19 We said in that case:chanrob1es virtual 1aw library

‘Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement. . .’ 20"

Also held in the recent case of Allied Banking Corp. v. CA 21 where this Court upheld the validity of a contract provision in favor of the lessee:jgc:chanrobles.com.ph

". . . Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality of contracts. . . . This binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom. The ultimate purpose is to render void a contract containing a condition which makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting parties.

"An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory restrictions, valid and binding on the parties. This option, which is provided in the same lease agreement, is fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. . .

"The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment. 22 (Emphasis supplied)

As correctly ruled by the MTC in its decision, the grant of benefit of the period in favor of the lessee was given in exchange for no less than an automatic 20% yearly increase in monthly rentals. This additional condition was not present in the Puahay and Singson cases.

Moreover, the express provision in the lease agreement of the parties that violation of any of the terms and conditions of the contract shall be sufficient ground for termination thereof by the lessor, removes the contract from the application of Article 1308.

Lastly, after having the lessees believe that their lease contract is one with an indefinite period subject only to prompt payment of the monthly rentals by the lessees, we agree with private respondents that the lessor is estopped from claiming otherwise. 23

In the case of Opulencia v. Court of Appeals, 24 this Court held that petitioner is estopped from backing out of her representations in the contract with respondent, that is, she may not renege on her own acts and representations, to the prejudice of the respondents who relied on them. We have held in a long line of cases that neither the law nor the courts will extricate a party from an unwise or undesirable contract he or she entered into with all the required formalities and will full awareness of its consequences.25cralaw:red

Anent the second issue, we likewise hold that the contention of petitioner is without merit. The Court of Appeals found that the petitioner’s allegation of respondents’ non-payment is false. This is a finding of fact which we respect and uphold, absent any showing of arbitrariness or grave abuse on the part of the court. Furthermore, the statement of petitioner that the correct amount of rents cannot be considered in a consignation case but only in the ejectment case is misleading because nowhere in the decision of the appellate court did it state otherwise. This second issue is clearly just a futile attempt to overthrow the appellate court’s ruling.

Nevertheless, suffice it to be stated that under Article 1258 of the Civil Code which provides:jgc:chanrobles.com.ph

"Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom to tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

"The consignation having been made, the interested parties shall also be notified thereof." chanrob1es virtua1 1aw 1ibrary

the rationale for consignation is to avoid the performance of an obligation becoming more onerous to the debtor by reason of causes not imputable to him. 26 Whether or not petitioner has a cause of action to eject private respondents from the leased premises due to refusal of the lessees to pay the increased monthly rentals had been duly determined in the ejectment case by the Municipal Trial Court which was correctly upheld by the Court of Appeals.

WHEREFORE, finding no error in the assailed decision, we DENY the petition for lack of merit and AFFIRM the decision of the Court of Appeals.

Costs against petitioner.


Bellosillo, Quisumbing, and Callejo, Sr., JJ., concur.

Mendoza, J., on official leave.


1. Entitled, "Tan Te Gutierrez and Co Tong, Petitioners, v. Hon. Judge Regional Court of Pasay City, Branch 36 and Jespajo Realty Corporation, Respondents.", CA rollo, p. 124.

2. Entitled, "Jespajo Realty Corp., Plaintiff-Appellant, v. Tan Te Gutierrez and Co Tong, Defendants-Appellees.", CA rollo, p. 75.

3. Entitled, "Jespajo Realty Corp., Plaintiff, v. Tan Te Gutierrez and Co Tong, Defendants."cralaw virtua1aw library

4. CA rollo, pp. 124-126.

5. CA rollo, p. 74.

6. Civil Case No. 91-57757, entitled, "Jespajo Realty Corporation, Plaintiff, v. Tan Te Gutierrez and Co Tong, Defendants", CA rollo, p. 207.

7. CA rollo, p. 131.

8. Rollo, p. 16.

9. 205 SCRA 305 (1992).

10. Ibid., at p. 311.

11. Id., at p. 19.

12. Id., at p. 20.

13. Rollo, p. 71.

14. 22 SCRA 215 (1968).

15. 77 Phil 470 (1946).

16. Puahay Lao case, note 13.

17. Ibid.

18. 21 SCRA 52, 58 (1967)

19. 43 Phil 873 (1922)

20. Supra note 18 at p. 58.

21. 284 SCRA 357, 363-365 (1998)

22. Id., at pp. 363-365.

23. Rollo, p. 53.

24. 293 SCRA 385 (1998)

25. Id., at p. 396.

26. Eternal Gardens Memorial Park Corp. v. Court of Appeals, 282 SCRA 554, 580 (1997).

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