The Supreme Court has affirmed that a verbal lease agreement, particularly one on a month-to-month basis, can be terminated by the lessor, leading to the lawful ejectment of the tenant. This ruling underscores the importance of clear, written agreements in lease contracts. It emphasizes that even without a formal written contract, the lessor retains the right to terminate the lease, provided proper notice is given. This decision affects both lessors and lessees, ensuring that property owners can regain possession of their property when lease terms are not clearly defined or when agreements are breached.

Masagana Citimall Saga: Can a Landlord Evict Based on a Disputed Verbal Agreement?

In the case of Materrco, Inc. vs. First Landlink Asia Development Corporation, the central issue revolved around the enforceability of a verbal lease agreement and the subsequent ejectment of Materrco from the premises of Masagana Citimall. FLADC sought to eject Materrco, claiming unpaid rentals and termination of a verbal lease. Materrco countered, asserting a written lease contract with different terms. The Metropolitan Trial Court (MeTC) and Regional Trial Court (RTC) sided with FLADC, finding no credible written contract and upholding the termination of the month-to-month verbal lease.

The Supreme Court (SC) affirmed the lower courts’ decisions, emphasizing that the validity of Materrco’s ejectment primarily rested on the termination of the month-to-month lease, not solely on unpaid rentals. The SC underscored that while trial courts may provisionally rule on claims of ownership or lease contracts in ejectment proceedings, their primary focus is on the right to possess the property. Jurisdiction in ejectment cases is not lost simply because the defendant claims ownership or legitimate possession based on a lease contract. In such cases, the MeTC may provisionally rule on the defendant’s claim of ownership or lease of the property to ascertain who has a right to possession.

The Court also addressed Materrco’s argument that the Court of Appeals (CA) failed to address the core issue of non-payment of correct rentals. However, the Supreme Court clarified that since the MeTC determined the lease to be a month-to-month verbal agreement that was properly terminated, the issue of proper rental payments became secondary. Thus, it was not necessary for the CA to resolve the issue on correct rentals. It’s also critical to keep in mind that when a lease is found to be on a month-to-month basis, its termination depends not only on non-payment, but also on the lessor’s decision to end the agreement, provided proper notice is given.

Materrco also argued that the rental amounts awarded exceeded what was prayed for in FLADC’s complaint. The SC invoked Rule 10, Section 5 of the Rules of Court, which states that issues tried with the express or implied consent of the parties are treated as if they had been raised in the pleadings. FLADC was able to present evidence supporting the reasonableness of a yearly increase in rental.

SECTION 5. Amendment to conform to or authorize presentation of evidence. — When issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made.

Finally, Materrco claimed the MeTC lacked jurisdiction due to insufficient payment of filing fees. However, the Supreme Court found that the fees paid by FLADC complied with the existing rules at the time the complaint was filed. The court cited the Kaw v. Anunciacion, Jr. ruling, emphasizing that the filing fee for ejectment complaints at that time was a “straight fee,” independent of the damages claimed. This legal detail solidifies the foundation of the case’s outcome, reminding all parties to adhere to jurisdictional requirements to avoid procedural impediments.

This case serves as a stark reminder of the implications of verbal agreements and the significance of documenting contractual arrangements comprehensively. By understanding these precedents, both lessors and lessees can safeguard their rights and avoid potentially costly and prolonged legal battles. With attention to detail and compliance with existing legal parameters, both parties are better able to chart their business relationships for success.

FAQs

What was the key issue in this case?	The key issue was whether Materrco could be ejected from the Masagana Citimall premises based on a terminated verbal lease agreement and alleged non-payment of rentals.
Did Materrco claim to have a written lease agreement?	Yes, Materrco claimed the existence of a written lease agreement with terms differing from FLADC’s assertions, which was a major point of contention.
What was the court’s finding regarding the lease agreement?	The court found that the purported written lease agreement presented by Materrco was not credible, thus the lease was considered verbal and month-to-month.
On what basis was Materrco ordered to vacate the premises?	Materrco’s ejectment was based on the termination of the month-to-month verbal lease, not solely on the claim of unpaid rentals.
Can a verbal lease agreement be legally terminated?	Yes, a month-to-month verbal lease agreement can be legally terminated by the lessor, provided that proper notice is given to the lessee.
Did the awarded rental amounts exceed the initial claim in the complaint?	Yes, but the court justified this by stating that the issues were tried with implied consent, allowing adjustments to conform to presented evidence.
What is the significance of Rule 10, Section 5 of the Rules of Court in this case?	Rule 10, Section 5 allows for amendments to pleadings to conform to the evidence presented, which was crucial in determining the rental amounts.
How did the court address Materrco’s claim of insufficient filing fees?	The court ruled that the filing fees paid by FLADC were compliant with the existing rules at the time the complaint was filed, thereby validating the court’s jurisdiction.
Is claiming ownership enough to prevent an ejectment?	No, the court has to determine provisionally who has the right to possess the property.

In conclusion, the Materrco vs. FLADC case highlights the critical role of clearly defined lease agreements and the legal rights of lessors to terminate verbal leases. This ruling reinforces the importance of formalizing lease contracts in writing to avoid disputes and protect the interests of both landlords and tenants.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: MATERRCO, INC. VS. FIRST LANDLINK ASIA DEVELOPMENT CORPORATION, G.R. No. 175687, November 28, 2007