FRANCISCO D. PALANCA, PETITIONER, VS. THE HONORABLE INTERMEDIATE APPELLATE COURT AND REYNALDO INCOMIO, RESPONDENTS.

This petition for review
on certiorari seeks to set aside the decision of the then Intermediate
Appellate Court which affirmed the decision of the Regional Trial Court of Quezon City in an ejectment case
mainly on the issue of the applicability of Batas Pambansa
Blg. 25, the law regulating the rentals of dwelling
units.

In 1965, petitioner
Francisco D. Palanca leased his apartment unit, located at No.
714-F Epifanio de los
Santos Avenue, Cubao, Quezon
City to private respondent Reynaldo Incomio (a market
vendor) at a monthly rental of one hundred and sixty pesos (P160.00).  The rental was later increased by
mutual agreement between the lessor and lessee to
five hundred pesos (P500.00) starting from November 1979.

The petitioner demanded from the private respondent the execution
of a written contract of lease as the contract had been merely verbal since
1965.  The private respondent, however,
refused to sign any written contract despite the long period of time given
him.  The petitioner therefore terminated
the month-to-month contract of lease.  He
sent a letter of demand dated November
20, 1981 to the private respondent asking the latter to vacate the
premises on or before December 15, 1981.  The
private respondent did not leave        the
premises.

The petitioner brought his complaint for unlawful detainer before the barangay
authorities but no amicable settlement could be reached.  The case was certified for filing with the
proper court.

On May 24, 1982,
the petitioner filed his complaint against the respondent with the Metropolitan
Trial Court, Branch 28 of Quezon City.  In his answer, the respondent alleged that he
was forced by the petitioner to agree
to the increase of rentals to P500.00 in November 1979.  According to him, he agreed due to the
petitioner’s threat of ejectment.  He further asserted that said increase was violative of section 1 of Batas Pambansa
Blg. 25 which prohibits the annual increase of
monthly rentals (not exceeding P300.00) of all residential units by more than
ten per cent (10%) of the monthly rentals existing at the time of the approval
of said Act (i.e., April 10, 1979).

While the ejectment case was pending before the Metropolitan Trial
Court, respondent Incomio filed a complaint before
the barangay authorities and later, before the Quezon City Fiscal’s Office for
alleged violation of Batas Pambansa Blg. 25.  The fiscal
dismissed the complaint on December 23, 1987 on the ground that the complainant consented
to the increased rental as shown by the consistent payments since 1979 until
the ejectment case was filed in 1982.  The fiscal stated that a mutual agreement to
increase is not prohibited by law, citing the opinion of the then Ministry of
Justice to which office the fiscal had sent a query on the matter.  The opinion embodied in the Minister’s answer
dated April 21, 1981
states:

“While it is true that Sec. 1, PD No. 20 prohibits any
increase in the agreed monthly rental of a dwelling unit rented at P300.00 a
month or less, the injunction is explicitly directed against the unilateral
increase of the rental by the lessor, thus:

‘No lessor of a dwelling unit or of land
on which another’s dwelling is located shall, upon promulgation of this Decree
and until otherwise provided, increase the
monthly rental agreed upon between the lessor and the
lessee as of the effectivity of this Act when said
monthly rental does not exceed three hundred pesos a month.’

“Where the lessor and the lessee,
however, come to terms and mutually agree on the increase, such agreement is
legal and binding between the parties as this is sanctioned under LOI No. 768,
which contains the implementing rules of PD No. 20, specifically par. 3 (a)
thereof, which states:

‘3.  The
following shall not constitute grounds for judicial ejectment
of lessee:

a.  When the lessee has failed to pay any
increased rental not mutually agreed upon provided, that
in case of refusal of the lessor to accept payment of
the rent previously agreed upon, the lessee shall either consignate the amount in Court or deposit the said
amount in a bank for the account of the lessor.’

“In the instant case, complainant’s payment of the increased
rental for over a period of two (2) years without objection or protest is
indicative of voluntary acquiescence on his part to the hiked rental thereby
lending credence to respondent’s claim that
the aforesaid increase was mutually consented to by the parties and, therefore,
not covered by the proscription of Presidential Decree No. 20.” (At p. 33,
Rollo)

The Metropolitan Trial Court, after trying the ejectment case dismissed the petitioner’s
complaint.  The court stated that Batas Pambansa Blg. 25 applies to this
case such that the increase in rentals from P160.00 to P500.00 monthly was violative of Section 1 of the same law.  Moreover, the lease, being on a
month-to-month basis as fixed by Article 1687 of the Civil Code, was for an indefinite period of
time; hence, the petitioner has no
legal ground to eject the defendant.  The
petitioner cannot unilaterally terminate
the month?to-month period because an action for ejectment
of a lessee where the lease was not for a definite period (as in this case) is not obtainable under section 6 of the same law.

Both parties appealed to the Regional Trial Court Branch 95, Quezon City.  The petitioner based his appeal on the
allegation that the decision was contrary to the facts and the applicable
laws.  The private respondent appealed on
the ground that the court failed to adjudge the petitioner as liable for the
damages prayed for in the answer.

The Regional Trial Court reversed the dismissal order of the
Metropolitan Trial Court on June 15, 1984.  It ruled that the increase in rentals from
P160.00 to P500.00 was valid because a reading of Pres. Decree No. 20 as
amended (cited in the opinion of the Minister of Justice) will show that the
law does not intend to prohibit the raising of rental amounts by mutual consent
of the parties.

Citing the opinion of the
Minister of Justice, the court ruled that the law prohibits only a unilateral increase of the
rentals by the lessor but not one that is mutually
agreed.

The Regional Trial Court further ruled that the verbal contract
of lease on a month-to-month basis was a lease with a definite period and falls under the exception in Section 6, Batas
Pambansa Blg. 25.  Hence, the lease may be terminated any month,
after which judicial ejectment is allowed.  The court explained that the petitioner-lessor had the legal right to terminate the verbal contract
of lease at the end of a month when, as in
this case, the defendant refused to sign a written agreement to renew
the lease.

The private respondent appealed to the respondent Intermediate
Appellate Court which, on March 22,
1985, set aside the Regional Trial Court’s decision and reinstated
the Metropolitan Trial Courts order of dismissing the complaint for unlawful detainer.  A motion for reconsideration was denied.  In its decision, the respondent appellate
court dealt only with the limitation on the increase of rentals. 
It held that the change between Pres. Decree No. 20 and Batas Pambansa Blg. 25 is
“significant” such that in the latter the legislature laid down a public policy against any mode of increase beyond the prescribed
rate, including one arranged by mutual agreement.

The present petition raises the main issue of whether or not an increase in rentals
by mutual agreement of the parties by more than 10% a month is covered by the
prohibition in Section 1, Batas Pambansa Blg. 25. 
Additionally, the petition raises the question of whether or not a
contract of lease on a month to month basis is one with a definite period.

The private respondent
reiterates in his brief his objection to the petitioner’s premise that the
increase was mutually agreed upon.  The
private respondent explains that
he gave his consent only because he was threatened by the lessor
with ejectment. 
He states that the prohibition in Section 1 of Batas Pambansa
Blg. 25 applies to this case since the increase was imposed by a unilateral act of the
petitioner.

It is apparent from the
records that the private respondent consistently paid the increased rents since
November 1979.  For two and a half years
as of the time the complaint for ejectment was filed
in May 1982 there was no effort on his part to sue the
petitioner for violation of Batas Pambansa
Blg. 25.  The
Regional Trial Court was correct in finding that the “long period of time
the payment of said rent could not have lasted without the defendant (private
respondent herein) having freely consented to it.” There is no
satisfactory proof of the alleged coercion but even assuming that the alleged
threat which pressured him to make payments was true, the moment he
was compelled by the petitioner to consent to the increased rentals beyond the
amount fixed by law was the time for him to sue.  The Court can not accord relief to the
private respondent who now claims lamely that his failure to sue at the earliest time possible was due to
his ignorance of any law that was violated. 
If he was indeed prejudiced by the increase to which he consented, he
should have immediately sought legal
assistance and availed of any remedy available to him or at least, withheld the
payment of the full amount of P500.00 for some time.  The
records show, however, that he let time pass by without manifesting any sign of being aggrieved or showing any
resistance to the arrangement.

The fact that the petitioner later on demanded that the lease
contract be in written form and assuming the truth of the allegation that the
petitioner wanted a further increase of rental to P1,000.00, still these do not
change the earlier agreement.  For it was only then that the respondent thought of questioning the
validity of the increased rental which was fixed as early as November 1979.

In view of this, the Court rules that there was consent and
acquiescence on the part of private respondent to the increase of the rentals
by more than 10% a month.  The acquiescence alone amounts to a voluntary
act of accepting the arrangement.  Hence,
there was mutual agreement.

Is the mutually agreed increase of rentals from P160.00 to
P500.00 a month covered by the prohibition under Sec. 1, Batas Pambansa Blg. 25?

The petitioner argues that it is not covered and the said
provision is not applicable because there is nothing in that law which
prohibits a mutual agreement.  The
petitioner further states that contrary to the conclusion of the respondent
appellate court, i.e., that the
legislature intended to prohibit not only an increase imposed by the lessor but also one that is mutually agreed, there is in
fact no substantial difference between section 1, Pres. Decree No. 20 and
Section 1, Batas Pambansa Blg.
25 (which amends the former) as both laws proscribe an increase made by the lessor alone.  The petitioner stresses that both statutes do not explicitly prohibit
an agreement to increase.

Section 1 of Batas Pambansa Blg. 25 provides:

“Section 1.  Authority to Increase
Rentals. – Upon the effectivity of this
Act and for a duration of five years thereafter the monthly rentals of all
residential units not exceeding three hundred pesos shall not be increased, for any one year period, by more than ten per
cent (10%) of the monthly rentals existing at the time of the approval of this
Act.” [underscoring supplied]

It is true that the above-quoted provision, unlike Section 1 of Pres.
Decree No. 20, fails to specify the person or persons responsible for the
increase.  However, we construe the provision to mean that the prohibition applies
only to an increase imposed by the lessor upon
the lessee.  This is in line with the
view that the legislature has consistently adopted the same intent in the law
to prevent abuse by the lessor.  The absence of any provision as to who
initiates the increase does not change the meaning of the law by extending the
prohibition even to cases where the parties have freely agreed to increased
rates and ultimately complied
accordingly.

It is worthwhile noting
that even in a later amendment
embodied in Section 1, Batas Pambansa Blg. 877, to wit:

“Section 1.  Monthly Rentals and Maximum
Increases – Beginning July 1, 1985 and for a duration of two and a half
years thereafter ending on December 31, 1987, monthly rents of all residential
units not exceeding four hundred eighty (P480.00) pesos shall not
be increased by the lessor
by more than the rates herein provided:” xxx (Underscoring supplied)

the intention to
prohibit a unilateral increase by the lessor beyond the
limit fixed by the law was retained.  Republic Act. No. 6643, which has extended the effectivity of Batas Pambansa Blg. 877 until December
31, 1989, carries the same legislative intent.  The Court rules that from the effectivity of Pres. Decree No. 20, and under the amending
laws which succeeded it, it is only an increase by the lessor
which is the subject of restriction.

The rental law, which lays down a policy of protecting the interests of the lessee,
should not be interpreted as
stifling the right of both the landlord and the tenant together to fix
the rental at a desired and reasonable
amount by mutual and voluntary agreement. 
The tenant may, if he chooses, waive his right against reasonable
increases so long as he knows that he can afford the agreed amount and believes
he is getting the kind of dwelling for the amount he is paying.

Regarding the nature of
the verbal lease contract on a month-to-month basis, the petitioner contends
that the lease is one with a definite period, expiring at the end of every
month.  Hence, the petitioner can
terminate the lease upon notice and judicially eject the private respondent at
the end of the month.  The petitioner
states further that it is the exception and not the general rule in Section 6,
Batas Pambansa Blg. 25 that
should apply.  Section 6 of the said law
provides:

“Section 6.  Application of
the Civil Code and Rules of Court
of the Philippines. – Except when the lease is for a definite period,
the provisions of paragraph (1) of Article
1673 of the Civil Code of the Philippines insofar as they refer to residential
units covered by this Act shall be suspended during the effectivity
of this Act, but other provisions of the Civil Code and the Rules of Court on
lease contracts, insofar as they are not in conflict with provisions of this
Act, shall apply.”

The private respondent insists that the lease is not for a
definite period and he should be allowed to stay in the premises for as long as
he can pay the rent.  This means, according to him, that there is
no definite period when the lease shall be terminated.  He admits, however, that the
rent is paid monthly.

Paragraph (1) of Article
1673 of the Civil Code, which the above quoted provision suspends, provides:

“Art. 1673 The lessor may judicially
eject the lessee for any of the following causes:

1.  When
the period agreed upon, or that which is fixed for the duration of leases under
Articles 1682 and 1689 has expired;”

xxx                        xxx                   xxx

Article 1687 on lease of urban lands in turn provides:

“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.”

The private respondent stresses that the lease which is governed
by Articles 1673 and 1687 is for an indefinite period and that under Batas Pambansa Blg. 25, the right to judicially eject the lessee is
not available.

In the recently decided
case of Uy Hoo and Sons Realty Development
Corporation v. Court of Appeals and Thomas
Kuan, (G.R. No. 83263, June 14, 1989), this
Court ruled that a month to month lease under Article 1687 is a lease with a
definite period, the expiration of which upon previous demand by the lessor to vacate, can justify ejectment.  In that case, the Court quoted inter alia from Miranda v. Ortiz,
(156 SCRA 10 [1987]):

“x x x.  In Rivera
v. Florendo promulgated on July 31, 1986, this Court made the following
pronouncement, viz:

‘What is suspended under Section 6 of Batas Pambansa
Blg. 25 is Article 1673 of the Civil Code of the Philippines
and not Article 1687 of the same Code. 
The effect of said suspension is
that independently of the grounds for ejectment
enumerated in Batas Pambansa Blg.
25, the owner/lessor cannot eject the tenant by
reason of the expiration of the period of the lease as fixed or determined
under Article 1687.  It does not mean
that the provisions of Article 1687 itself had been suspended.  Thus, the determination of
the period of a lease agreement can
still be made in accordance with said
Article 1687.‘

‘Admittedly, no definite period for the lease was agreed upon by
petitioners and private respondent.  However,
as the rent was paid on a monthly basis the period of lease is considered to be
from month to month in accordance with Article 1687.  When petitioners gave private
respondent notice to vacate the premises
in question, the contract of lease is
deemed to have expired as of the
end of the month. 
As we have ruled in Baen v. Court of Appeals,
supra, even if the month to month arrangement is on a verbal basis, if it is
shown that the lessor needs the property for his own use or for the use of any immediate member of the family or for any of
the other statutory grounds to eject under Section 5 of Batas Pambansa Blg. 25, which happens
to be applicable, then the lease is considered terminated as of the end of the
month, after proper notice or demand to vacate has been given.  (See Crisostomo
v. Court of Appeals, 116 SCRA 199).’

x x
x              x
x x                 x x x

“The ruling was reiterated in Zablan
v. C.A., et al., G.R. No. 57844, September 30, 1987, in which it was further
pointed out that (1) if the verbal lease agreement on a month? to-month basis were held to be for an
indefinite period and not terminable at the end of any given month, the law
would be rendered illusory in the sense that the owner/lessor
notwithstanding his pressing need for the premises could never successfully
eject the tenant because the period of lease would never expire during the effectivity of Batas Pambansa Blg. 25.  x x x.”

The Court noted that
notwithstanding the fact that the Miranda case and the Rivera
case quoted therein involved a need for the lessor to
re-possess the leased premises for his own use, (which
in fact is not present in this case), the Court applied the ruling therein on
the ground that:

“x x x the
thrust of the decision in said cases appears to be that ‘the determination of
the period of a lease agreement can still be made in accordance with said
Article 1687, and that in a month to
month lease situation, when petitioners (lessor) gave
private respondent (lessee) notice to vacate the premises in question, the
contract of lease is deemed to have expired as of the end of the month.” (Uy Hoo and Sons Realty
Development Corp. v. Court of Appeals and Thomas Kuan,
supra, p. 9)

Furthermore, the Court presented the following reasoning why it
arrived at the conclusion that a verbal lease
contract under Article 1687 is one with a definite period so that at the
end of a month the lease shall expire upon demand by the lessor
to vacate:

“Besides, while Section 5 (f) of BP Blg.
25, originally stated that ‘expiration of the period of a written lease
contract’ is one of the grounds for judicial ejectment
(like need of the leased premises by the lessor under
5 [c]).  BP Blg.
877 amended Sec. 5 (f) of BP Blg. 25 into stating
that ‘expiration of the period of the lease contract is a
ground for judicial ejectment x x
x.”

There is no showing under the circumstances of this case why the
same rule should not apply to the respondent.   Considering our rulings on the two issues
raised by the petitioner, the lessor can judicially
eject the lessee in this case.

WHEREFORE, the petition is hereby GRANTED.  The decision of the respondent appellate
court is REVERSED and SET ASIDE.  The
decision of the Regional Trial Court of Quezon City,
Branch 95, dated 15 June 1984, in Civil Case No. Q-40803 is REINSTATED.

SO ORDERED.

Fernan, C.J., (Chairman), Feliciano, Bidin, and Cortes, JJ., concur.