In Peña v. Tolentino, the Supreme Court addressed the legality of ejecting lessees when their lease agreements, particularly those on a month-to-month basis, have expired. The Court ruled that even under the previous rent control laws, a lease agreement without a fixed period, where rent is paid monthly, is considered a lease with a definite term that expires at the end of each month. This means landlords have the right to terminate such leases and demand that tenants vacate the premises, provided proper notice is given. This decision clarifies the rights and obligations of both landlords and tenants under Philippine law, ensuring a balance between protecting tenants and allowing property owners to manage their property effectively.

Month-to-Month Leases: Can Landlords Evict After Decades of Occupancy?

The case revolves around Emiliana Peña, Amelia Mar, and Carmen Reyes, who were lessees of separate parcels of land owned by Spouses Armando and Leticia Tolentino in Manila. The lease agreements were oral, with monthly rents of P570.00, P840.00, and P480.00, respectively, as of October 9, 1995. On August 15, 1995, the Tolentinos sent demand letters to each lessee, terminating their month-to-month lease contracts effective September 15, 1995, and requiring them to vacate their premises. The letters warned that failure to comply would result in a charge of P3,000.00 per month as reasonable compensation for the use and occupancy of the properties.

When the lessees refused to vacate, the Tolentinos filed three separate ejectment complaints in the Metropolitan Trial Court (MeTC) of Manila, which were later consolidated. The lessees argued that they could not be summarily ejected due to Presidential Decree (P.D.) No. 20 and related laws, which they claimed protected them from arbitrary eviction. The key issues before the MeTC were whether the lessees could be ejected due to the expiration of their verbal lease contracts and whether the compensation demanded by the Tolentinos was excessive. This case hinged on the interpretation of lease agreements and the applicability of rent control laws in the Philippines.

The MeTC ruled in favor of the Tolentinos, ordering the lessees to vacate their respective properties and pay specified amounts as reasonable compensation for their continued occupancy. The MeTC relied on the Supreme Court’s ruling in Acab, et. al. vs Court of Appeals (G.R. No. 112285, February 21, 1995), which held that lease agreements with no specified period, but with monthly rental payments, are considered month-to-month leases. These leases expire at the end of any given thirty-day period upon proper demand and notice, providing sufficient cause for ejectment under Section 5(f) of Batas Pambansa (B.P.) 877, which addresses the expiration of the lease contract.

On appeal, the Regional Trial Court (RTC) modified the MeTC’s decision, fixing the lease term for two years from the date of its decision, considering that the lessees had occupied the premises for over 30 years. The RTC invoked Article 1687 of the Civil Code, which grants courts the authority to fix a longer term for leases. However, both parties appealed this decision. The Court of Appeals (CA) then set aside the RTC’s decision and reinstated the MeTC’s ruling, with the modification that the lessees pay their agreed rentals, gradually increased in accordance with the Rent Control Law, for the use and occupancy of the premises.

The petitioners raised two primary arguments before the Supreme Court. First, they argued that their ejectment violated P.D. No. 20, which they believed protected them from eviction based on the expiration of the lease period. Second, they contended that their eviction violated the Urban Land Reform Code (P.D. 1517) and R.A. 3516, which allegedly granted them the right of first refusal to purchase the leased properties. The Supreme Court, however, found these arguments to be without merit. The Court clarified that P.D. No. 20 had been expressly repealed by Batas Pambansa Blg. 25, which was approved on April 10, 1979. This effectively removed the legal basis for the petitioners’ claim that the expiration of their lease period was not a valid ground for ejectment.

Furthermore, the Court emphasized the relevance of B.P. Blg. 877, the controlling rental law when the ejectment complaints were filed. While Section 6 of B.P. Blg. 877 suspended paragraph 1 of Article 1673 of the Civil Code (similar to Section 10 of R.A. No. 9161), it did not suspend the effects of Article 1687 of the Civil Code. This meant that the determination of the lease period could still be made according to Article 1687. Under this article, because no definite period was agreed upon and the rents were paid monthly, the leases were deemed to be for a definite period, terminating at the end of each month. The notice given to the petitioners about the expiration of their leases further solidified the end of their right to stay on the premises.

The Supreme Court addressed the petitioners’ invocation of their supposed right of first refusal under P.D. 1517 and R.A. No. 3516. The Court pointed out that the petitioners had failed to raise this issue in the lower courts, despite having been aware of their supposed right even before the respondents acquired the properties. The Court deemed this a change of theory on appeal, which is impermissible. The Court cited Carantes v. Court of Appeals (G.R. No. L-33360, April 25, 1977) stating:

The settled rule is that defenses not pleaded in the answer may not be raised for the first time on appeal. A party cannot, on appeal, change fundamentally the nature of the issue in the case. When a party deliberately adopts a certain theory and the case is decided upon that theory in the court below, he will not be permitted to change the same on appeal, because to permit him to do so would be unfair to the adverse party.

Moreover, the Court emphasized that the issue of whether the leased premises were covered by P.D. 1517 was a factual question that should have been determined by the trial court. Therefore, the Supreme Court affirmed the CA’s decision to reinstate the MeTC’s order for the petitioners’ ejectment. However, the Court modified the CA’s decision regarding rentals, reinstating the MeTC’s decision without qualification. This meant that the petitioners were required to pay reasonable compensation for the use and occupancy of the premises, rather than the agreed rentals, as the leases had already expired.

The following table illustrates the differences in the decisions across the different courts:

Court	Decision	Rationale
Metropolitan Trial Court (MeTC)	Ordered ejectment and payment of reasonable compensation	Lease agreements were month-to-month and had expired
Regional Trial Court (RTC)	Modified decision, fixing lease term for two years	Authority under Article 1687 of the Civil Code
Court of Appeals (CA)	Reinstated MeTC’s decision with modification on rentals	Month-to-month leases expired, but rentals should be paid
Supreme Court	Modified CA’s decision, reinstating MeTC’s decision without qualification	Leases expired; reasonable compensation is more appropriate

This case offers several critical insights for both landlords and tenants. Landlords must provide proper notice to tenants when terminating month-to-month lease agreements to ensure compliance with legal requirements. The expiration of a lease, even after many years of occupancy, is a valid ground for ejectment if the lease is on a month-to-month basis and proper notice is given. Tenants, on the other hand, must assert their rights and defenses promptly in the lower courts. Failure to do so may prevent them from raising these issues on appeal. If a tenant believes they have a right of first refusal to purchase the property, they should assert this right at the earliest opportunity.

FAQs

What was the key issue in this case?	The key issue was whether the lessors could eject the lessees based on the expiration of their month-to-month lease agreements.
What did the Metropolitan Trial Court (MeTC) rule?	The MeTC ruled in favor of the lessors, ordering the lessees to vacate the properties and pay reasonable compensation for their continued occupancy.
How did the Regional Trial Court (RTC) modify the MeTC’s decision?	The RTC modified the decision by fixing the lease term for two years from the date of its decision, considering the length of occupancy.
What was the Court of Appeals’ (CA) ruling?	The CA set aside the RTC’s decision and reinstated the MeTC’s ruling, with the modification that the lessees pay their agreed rentals, increased in accordance with the Rent Control Law.
What did the Supreme Court ultimately decide?	The Supreme Court modified the CA’s decision, reinstating the MeTC’s decision without qualification, requiring the lessees to pay reasonable compensation rather than agreed rentals.
Why did the Supreme Court reject the lessees’ claim under P.D. 20?	The Supreme Court rejected the claim because P.D. No. 20 had been expressly repealed by Batas Pambansa Blg. 25, removing the legal basis for their argument.
What is the significance of Article 1687 of the Civil Code in this case?	Article 1687 allows for the determination of lease periods when no definite period is agreed upon, deeming monthly rental payments as month-to-month leases that expire at the end of each month.
Why couldn’t the lessees raise their right of first refusal on appeal?	The lessees could not raise their right of first refusal on appeal because they failed to assert this right in the lower courts, and changing their theory on appeal is impermissible.

This case reaffirms the principle that landlords have the right to manage their properties and terminate lease agreements when they expire, provided that proper notice is given. It also highlights the importance of raising all relevant defenses and claims in the lower courts to preserve the right to argue them on appeal. Understanding these principles is crucial for both landlords and tenants in navigating lease agreements and protecting their respective rights under Philippine law.

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: EMILIANA G. PEÑA, AMELIA C. MAR, AND CARMEN REYES, PETITIONERS, VS. SPOUSES ARMANDO TOLENTINO AND LETICIA TOLENTINO, RESPONDENTS, G.R. No. 155227-28, February 09, 2011