G.R. No. L-55998 January 17, 1985
RAMON MAGSAYSAY AWARD FOUNDATION, petitioner, vs. THE COURT OF APPEALS and SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA, respondents.

FACTS

Petitioner Ramon Magsaysay Award Foundation leased the 9th floor of its building to private respondent law firm under a five-year contract from March 11, 1968, to March 10, 1973. The contract contained a clause for rental review every two years and expressly prohibited any extension by implication. In January 1972, petitioner invoked this clause to increase the rent from P14.00 to P16.00 per square meter for the remainder of the contract. Upon the contract’s expiration, the parties negotiated a renewal. Respondent signed a new two-year lease draft from March 11, 1973, with a rental of P17.00 per square meter effective June 11, 1973, and P16.00 for the preceding three months. However, respondent deleted a footnote referencing the P16.00 rate’s effectivity from March 1972. Petitioner refused to sign this altered contract, leading to a dispute over alleged back rentals from 1972.

ISSUE

The primary issue is whether the private respondent is liable for deficiency rentals from 1972 and for reasonable compensation for its continued occupancy of the premises after the original lease expired, despite the absence of a mutually signed renewal contract.

RULING

The Supreme Court ruled in favor of the petitioner, holding the respondent liable. On the 1972 deficiency, the Court found the rental adjustment to P16.00 per square meter was validly exercised under the contract’s review clause. Respondent’s failure to contest this increase at the time and its subsequent partial payment constituted acquiescence. Regarding the post-contract period, the Court applied the principle that a lessee who remains in possession after the lease term becomes a hold-over tenant. The law imposes an obligation to pay reasonable compensation for the use and occupancy of the property. The parties’ negotiations and respondent’s continued payments at the P17.00 rate from June 1973 created an implied new lease, but only on a month-to-month basis. Consequently, petitioner had the right to demand increased rentals for subsequent periods. The respondent, having remained in possession, was liable for these reasonable rates as determined by the petitioner and sustained by the Court. The burden was on the respondent to prove any demanded rental was exorbitant, which it failed to do. Thus, respondent was ordered to pay deficiency rentals for 1972 and reasonable compensation for its occupancy from 1975 until it vacated in 1980 at the rates specified by the Court.