RICARDO CRUZ, PETITIONER, VS. HON. INTERMEDIATE APPELLATE COURT AND ROMAN LEGARDA SO, RESPONDENTS.

Before us are two separate petitions filed by Ricardo Cruz (G.R.
No. 72313) and Roman Legarda So (G.R. No. 72326) to
review on certiorari the decision of the Court of Appeals in AC-G.R. CV
No. 03291 entitled “Ricardo Cruz vs. Roman Legarda
So,” dated May 28, 1985,^[1]
the dispositive portion of which provides:

“WHEREFORE, the decision appealed from is hereby MODIFIED as
follows:

1.       The lease contract is
extended for a period of 57 months to be reckoned from March 31, 1982.

2.       The compensatory
damages and actual damages awarded to the petitioner are eliminated.

3.       The writ of
preliminary injunction is granted only for a period of the extension of the
lease.

4.       The counterclaim of
the respondent is hereby dismissed.

No costs.”^[2]

Culled from the decision of respondent Court of Appeals are the
following factual findings:

“It is not disputed in the record that the Padre Rada market consisted of six parcels of land belonging to
different persons, one parcel of which with an area of 651.80 square meters is
owned by Roman Legarda So.

“The petitioner’s evidence shows that the Padre Rada
Market Operators Association, an unregistered partnership, constructed the
market with leasehold right from the owners of the lots (Exhs.
L & L-1).  The lease with respondent
So was of an indefinite duration at a monthly rent of P3,500 (Exhs. E to E-14 & G).

“Petitioner has been the manager of said association
supervising the market, assigning market inspectors and collectors, and
collecting from stallholders and merchants (biyaheros)
doing business in the market.  He also
takes charge of rental payments of the market so that rental receipts issued by
So were all made out in his name. 
(Exhibits ‘E’ to ‘E-14’). 
Communications intended for the association are also addressed by So to
him.  And when So demanded the
liquidation of the alleged rental arrearages of the association, a letter to
this effect was sent to Cruz by the lawyer of So (Exhibit ‘A’), and other
letters by So himself (Exhibits ‘B’, ‘G’, ‘G-1’ and ‘H’).

“On April 18, 1977
Cruz received a letter from respondent advising him to pay the rentals in
arrears and to vacate the premises on or before April 30, 1977 (Exh. B).  The petitioner, nevertheless, continued
operating the market and paid the monthly rental to respondent for May 1977
without any protest.

“Sometime in June, the petitioner was suddenly served a copy
of a temporary restraining order issued by the then Court of First Instance of
Manila, Branch XXII, in its Civil Case No. 109218, which was an action
commenced against Cruz by So and one Antonio Barredo,
Jr. to prohibit his market operation and collection of rentals (t.s.n., March 1, 1983, p. 4).

“It turned out that respondent So leased out a portion of the
Padre Rada market to Antonio Barredo,
Jr. for a period of five
years.  So also entered into a lease agreement with Antonio
Gonzales, Jr. and Milagros de Leon for a three year period ending March 31, 1982.”^[3]

By virtue of said injunction proceeding commenced by So and Barredo, Ricardo Cruz was compelled to stop his market
operations and collection of market fees from June, 1977 to March, 1982 or a
period of fifty-seven (57) months.

After the expiration of the lease contract between Roman So and
Milagros de Leon, Ricardo Cruz immediately filed Civil Case No. 82-8098 in the
Regional Trial Court of Manila^[4]
on March 31, 1982 to enjoin Roman So from leasing out the market to third
parties.  Upon application of Ricardo
Cruz, a writ of preliminary injunction was issued on May 4, 1982, enjoining Roman So from leasing the
market to third parties, renewing his contract with Antonio Gonzales, Jr.
and/or Milagros de Leon and from collecting rentals from stallholders thereat
during the existence of the lease agreement with Cruz and his association.

On May 13, 1983,
the trial court rendered a decision the dispositive
portion of which decrees:

“WHEREFORE, judgment
is hereby rendered as follows:

1)      Declaring petitioner
as the lawful representative of the Padre Rada Market
Association or as one of the members thereof;

2)      Declaring the lease
contract over the Padre Rada Market entered into by the petitioner’s association with the
respondent as having lawfully expired on March 31, 1982;

3)      Declaring petitioner
as no longer without any right to continue occupying, possessing and enjoying
the MARKET starting April 1, 1982, and ordering said petitioner to forthwith vacate the premises     and surrender possession to the respondent;

4)      Ordering the
petitioner to make an accounting of all the collections and expenses made for
the administration of the property from April 1, 1982 until petitioner shall
have surrendered possession thereof to respondent;

5)      Ordering petitioner to
pay a monthly rental of P3,500.00
to the respondent up to March 31, 1982;

6)      Ordering respondent in
turn to make an immediate accounting of receipts from stallholders paid to him
during the present controversy without the knowledge of the petitioner, and to
credit the petitioner for such collections. 
If the collections exceed P3,500 monthly, the excess thereof shall be
paid the petitioner;

7)      The writ of
preliminary injunction issued in this case is hereby lifted and set aside;

8)      The claim for other
damages by one party against the other, including respondent’s counterclaim,
are both dismissed.

Petitioner shall pay the costs of suit.”^[5]

This decision was, however, reconsidered upon motion of Ricardo
Cruz, as a consequence of which the court a quo rendered
a new decision on February 6, 1984,
the decretal portion of which reads:

“WHEREFORE, judgment is hereby rendered as follows:

1.       The Decision of May 13, 1983 is reiterated insofar as
it is not inconsistent with the following dispositions;

2.       It is declared that
the lease contract of the parties is still good and subsisting, and with an
extended term of fifteen (15) years, reckoned from the date this New Decision
shall have become final, under the same terms and conditions of their
agreement, including the amount of rental which is P3,500 per month, unless the
parties mutually agree on other terms, conditions and stipulations;

3.       Making permanent the
writ of preliminary injunction previously granted therein;

4.       Ordering respondent
to pay the petitioner the sum of P285,000 (P5,000 x 57 months) as compensatory
and actual damages in the form of losses suffered and/or loss of profit; and

5.       Respondent’s
counterclaim is denied and dismissed.

Respondent is ordered to pay the costs.”^[6]

On appeal, respondent court rendered the decision hereinbefore
mentioned, hence, the instant petitions which were consolidated by the
resolution of this Court on October 6,
1986.

In G.R. No. 72313, Ricardo Cruz avers that respondent Court of
Appeals erred in reducing the lease period fixed by the trial court, and in
eliminating the compensation award to him for losses arising from his unlawful
dispossession of the Padre Rada Market.  On the other hand, Roman Legarda
So alleges, in G.R. No. 72326, that respondent court erred:  (1) in not declaring the lease to have been
validly terminated for non-payment of rentals; (2) in not holding that the
lease, being on a month-to-month basis, could be terminated at the end of every
month; (3) in applying Article 1687 of the Civil Code to extend the lease of
Cruz to December, 1986; and (4) in not ordering Cruz to pay rentals up to the
time of actual relinquishment of the premises.

The main issue for resolution in this case is whether or not
Roman Legarda So could validly terminate his contract
of lease with Ricardo Cruz and enter into a new contract with third
persons.  A corollary issue is whether
Ricardo Cruz is entitled to have the term of his lease fixed for another and
longer period of time.

We hold that there was a valid termination of the lease contract
executed between Ricardo Cruz and Roman Legarda So
for several reasons.

Firstly, the applicable provision of the Civil Code states:

“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.  x x x“

In the case at bar, there is no debate that Ricardo Cruz pays his
rent monthly which thus makes his lease contract terminable at the end of every
month without need of any special notice to vacate.^[7]
Roman Legarda So may exercise his right to terminate
the contract at the end of any month even if any of the conditions of the
contract had not been violated,^[8]
and such right cannot be defeated by the lessee’s timely payment of the rent or
by his willingness to continue doing so.^[9]
Furthermore, the contract of lease being on a month-to-month basis, Ricardo
Cruz cannot validly claim that the lease is for an indefinite period.  Article 1687 specifically provides that the
term is month to month if the rent is paid monthly, hence it is a lease with a
definite term.  Such lease contract
expires at the end of every month unless there is an implied or tacit renewal
thereof as when the lessee is allowed to continue enjoying the leased premises
for fifteen (15) days at the end of every month with the acquiescence of the lessor.  Such
exception, however, cannot be invoked when notice to vacate is given to the
lessee in which case the contract of lease expires at the end of the month.

In the case at bar, Ricardo Cruz does not refute, and in fact he
even admits, that a notice to vacate was issued to him on April 18, 1977 by
Roman Legarda So informing him that their lease
contract would expire on April 30, 1977. 
Although payment of rental was made for the month of May, 1977 and
accepted by Roman Legarda So, this does not by itself
curtail the latter’s right to terminate the lease contract at the end of every
succeeding month.  Besides, the lessor is entitled to payment for the occupancy of his
premises even after the contract has expired.

Secondly, without explicitly admitting the breach, Cruz offers
the flimsy and unsubstantiated excuse that there is a pre-existing remittance
arrangement between the parties over the settlement of his rental arrearages
and erroneously postulates that, by virtue of said arrangement, he cannot now be considered as in default.^[10]
For all intents and purposes, the fact remains that the failure of Cruz to pay
the rents when due constitutes a breach
of the contract of lease which gives rise to So’s
right of rescission under Article 1191 of the Civil Code which states:

“Art. 1191.  The power to
rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case.  He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.”

We are convinced that So acted well within his rights in
terminating his contract with Cruz and in entering into a new one with third
persons, without need of resorting to judicial action.  This finds support in our ruling in the case
of University of the Philippines
vs. De los Angeles,
etc., et al.^[11]
which involved the question of whether the injured party may consider the
contract as rescinded even before any judicial pronouncement has been made to
that effect.  This Court, in holding in
the affirmative, ruled that:

“Of course, it must be understood that the act of a party in treating a contract as
cancelled or resolved on account of infractions by the other contracting party
must be made known to the other and is always provisional, being ever subject
to scrutiny and review by the proper
court.  If the other party denies that
rescission is justified, it is free to resort to judicial action in its own
behalf, and bring the matter to court. 
Then, should the court, after due hearing, decide that the resolution of
the contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.

“In other words, the party who
deems the contract violated may consider
it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds
at its own risk. 
For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct
in law.  But the law
definitely does not require that the contracting
party who believes itself injured must
first file suit and wait for a
judgment before taking extrajudicial
steps to protect its interest.  Otherwise, the party injured
by the other’s breach will have to
passively sit and watch its damages accumulate
during the pendency of the
suit until the final judgment of rescission
is rendered when the law itself requires
that he should exercise due diligence
to minimize its own damages (Civil Code, Article
2203).

“We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring that judicial
action is necessary for the resolution
of a reciprocal obligation, since in every case where the extrajudicial
resolution is contested only the final award of the court of competent
jurisdiction can conclusively settle whether the resolution was proper or
not.  It is in this sense that judicial
action will be necessary, as without
it, the extrajudicial resolution
will remain contestable and subject to judicial invalidation, unless attack
thereon should become barred by acquiescence, estoppel
or prescription.” (Emphasis supplied)

Ricardo Cruz further
maintains that the lease contract with Roman Legarda
So is one with an indefinite period, no specific term having been agreed upon
by the parties, hence the court can legally fix a longer term.  He invokes the second sentence of Article 1687 of the Civil Code which
states that even though a monthly rental 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.

We reject such proposition.

As earlier stated, the
contract of Ricardo Cruz, being on a month-to-month basis, is a lease with a definite
period.  Since the contract of lease is
for a definite term, the lessee cannot avail of the benefits under Article 1687
which applies only if there is no definite term.  And, even assuming arguendo
that Article 1687 applies, Ricardo Cruz would still not be entitled to have the
term fixed for a longer period since his action was filed only after the
contract had expired.

As held in Vda. de Prieto vs. Santos,
et al.:^[12]

“Under this provision, if the period of a lease contract has not
been specified by the parties therein, it is understood to be from month to
month, if the rent agreed upon is monthly, as in the cases at bar.  Consequently, the contract expires at the end of such month, unless, prior
thereto, the extension of said term has been sought by appropriate
action and judgment is, eventually, rendered therein granting said relief.

Defendants herein maintain that their lease contracts did not, and
could not, come to an end until after the court has fixed its lifetime and the
term thus fixed has expired.  This view,
is, to our mind, untenable.  To begin
with, defendants assume that their contracts are without term, prior to the
judicial action authorized in said Article 1687, whereas the same provides that
the duration of lease contracts shall be yearly, monthly, weekly, or daily
depending upon whether the rental agreed upon is annual, monthly, weekly, or
daily.  In other words, said contracts
have a term fixed by law, and are not indefinite in duration, before said
judicial intervention.  Secondly, said
Article 1687 merely gives the
court discretion to extend the period of the lease.  The court is not bound to
extend said term.  It may legally refuse
to do so, if the circumstances surrounding the case warrants such action.  x x x” (Emphasis
reproduced)

Additionally, under the factual features of this case, there is
nothing in the law which confers upon the lessee the preferential right to
occupy the premises over other prospective lessees when his lease contract has
been terminated.  To require otherwise
will unduly deprive the lessor of his ownership
rights without due process of law.

Lastly, if Ricardo Cruz actually believed that he had every right
to continue with the lease of the subject premises, we find no plausible reason
for his inscrutable silence on and apparent acquiescence to the lease contract
executed by Roman Legarda So with third persons in
1977.  His inexplicable inaction when
ordinary reason and prudence dictate that he should have done something about
it operates as an admission that his lease contract had been validly
terminated.

While we are inclined, on equitable considerations, to allow the
period of extension provided for by the Court of Appeals, the grant thereof has
been rendered moot by the fact that Ricardo Cruz had recovered and has been in
possession of the premises since May 4,
1982 when a writ of preliminary injunction was issued by the trial
court.  In fact, it appears that he
continues to do so up to the present, which is clearly beyond the 57-month period
fixed by the Court of Appeals, without paying the corresponding rentals for his
occupancy.  Under the circumstances, the
legal imperative is that Ricardo Cruz should pay Roman Legarda
So a monthly rent of P3,500.00 starting May 4, 1982 until Cruz surrenders
possession of the leased premises to So. 
Correlatively, Ricardo Cruz should immediately desist from operating the
market and from collecting rentals from
stallholders occupying the premises of Roman Legarda
So and to peaceably surrender the said premises to So or the latter’s
authorized representatives.

WHEREFORE, the
judgment of the Court of Appeals is hereby MODIFIED as follows:

1.  Ricardo Cruz is hereby
ordered to forthwith desist from operating the market and from collecting
rentals from stallholders occupying the premises of Roman Legarda
So;

2.  Ricardo Cruz is further
ordered to pay a monthly rental of P3,500.00 to Roman Legarda
So from May 4, 1982 until he
fully surrenders possession of the entire leased premises to Roman Legarda So.

3.  The writ of preliminary
injunction issued by the court a quo is hereby dissolved.

SO ORDERED.

Melencio-Herrera, (Chairman), Paras, Padilla, and Sarmiento, JJ., concur.

^[1]
Justice Jorge R. Coquia, ponente, Justices Mariano A. Zosa, Floreliana Castro-Bartolome and Bienvenido C. Ejercito, concurring.

^[2]
Rollo, G.R. No. 72313, 55-56.

^[3]
Ibid., id., 50.

^[4]
Branch II, presided over by Judge Rosalio A. de Leon.

^[5]
Rollo, G.R. No. 72313, 31-32.

^[6]
Ibid., id., 43-44.

^[7]
Buhay vs. Cobarrubias,
76 Phil. 213 (1946).

^[8]
Fernando vs. Aragon,
et al., 76 Phil. 609 (1946).

^[9]
Ramirez vs. Reyes, 77 Phil. 1030 (1947).

^[10]
Memorandum for Ricardo Cruz, 15.

^[11]
35 SCRA 102 (1970).

^[12]
98 Phil. 509 (1956).