G.R. No. 115851; June 20, 2001
LA JOLLA, INC., petitioner, vs. COURT OF APPEALS and PELEGIA VIRAY DE AGUILAR, respondents.

FACTS

Petitioner La Jolla, Inc. is the owner of a building at Nos. 434 and 440 Rizal Avenue, Sta. Cruz, Manila, acquired in 1964. Private respondent Pelagia Viray de Aguilar was an occupant of a portion of the building at No. 440 Rizal Avenue under a verbal month-to-month sub-lease. On November 14, 1964, petitioner notified private respondent of the termination of her lease effective December 31, 1964, intending to demolish the building. Upon her failure to vacate, petitioner filed an ejectment suit, resulting in a March 27, 1965 decision ordering her to vacate and pay rentals. This decision became final and executory on October 23, 1966. A second ejectment suit was filed on August 6, 1976, due to private respondent’s refusal to accede to a rental increase. A June 8, 1978 decision ordered her to vacate and pay increased rentals, which was modified on appeal on July 3, 1979, setting the monthly rental at P3,186.88 until she vacates. This decision became final. On February 11, 1989, petitioner again notified private respondent of the termination of her lease effective February 28, 1989, citing the month-to-month basis and an alleged violation by sub-leasing. Upon her failure to vacate, petitioner filed a third ejectment complaint on August 31, 1989. The Metropolitan Trial Court rendered a decision on May 6, 1992, ordering private respondent to vacate and pay P15,000.00 monthly as reasonable compensation from March 1989. This was affirmed by the Regional Trial Court. On appeal, the Court of Appeals modified the decision on February 21, 1994, extending the lease for two years from the finality of its decision at a monthly rental of P15,000.00 prospectively, and ordering payment of P9,000.00 monthly as reasonable compensation for use from March 1989 until finality, with deductions for amounts paid, plus attorney’s fees.

ISSUE

Whether the Court of Appeals correctly applied Article 1687 of the Civil Code to extend the period of lease for two years from the finality of its decision.

RULING

No. The Supreme Court held that the Court of Appeals erred in extending the lease. The power of the court to fix a longer term under Article 1687 of the Civil Code is potestative and must be exercised equitably, considering the circumstances of the case. In this instance, the private respondent’s occupancy originated from a month-to-month lease, and the owner had repeatedly sought to recover possession for legitimate purposes since 1964. The private respondent had been a lessee for a long period, but this alone does not justify extension when the owner has consistently demonstrated a need to use the property. The Court of Appeals’ extension, based solely on the length of occupancy as a “reward,” disregarded the owner’s right to possess and use its property. The Supreme Court reversed the Court of Appeals’ decision and reinstated the Metropolitan Trial Court’s decision ordering the private respondent to vacate the premises and pay reasonable compensation.