G.R. No. 93625 November 8, 1993
VICENTE J. SANTI, petitioner, vs. HON. COURT OF APPEALS, HEIRS OF AUGUSTO A. REYES, JR., represented by ALEXANDER REYES, respondents.

FACTS

Esperanza Jose was the registered owner of a parcel of land in Cavite City. On July 12, 1957, she leased a portion to spouses Eugenio Vitan and Beatriz Francisco for 20 years, with a stipulation for the lease to be “automatically extended” for another 20 years at a rental of P220.00 per month. In 1962, the Vitans sold their rights, including the cinema house built on the land and their leasehold rights, to Augusto A. Reyes, Jr. A new Contract of Lease was then executed between Esperanza Jose and Augusto Reyes, Jr. for a period of 20 years from April 1, 1962, with a monthly rental of P180.00. Paragraph 3 of this new contract stated the lease was “extendable for another period of twenty (20) years with a monthly rental of TWO HUNDRED TWENTY PESOS (P220.00).” Esperanza Jose later sold the land to Vicente J. Santi. Upon the expiration of the first 20-year period on March 31, 1982, Santi demanded that the heirs of Reyes vacate the property. The heirs refused, contending the lease was automatically extended for another 20 years at P220.00 per month, and tendered payment which Santi refused. The parties agreed that the sole issue for resolution was the interpretation of Paragraph 3 of the 1962 Contract of Lease.

ISSUE

Whether the phrase “said period of lease being extendable for another period of twenty (20) years” in the 1962 Contract of Lease between Esperanza Jose and Augusto Reyes, Jr. provides for an automatic extension of the lease, or if it requires a subsequent agreement between the parties for such extension.

RULING

The Supreme Court ruled that the lease was NOT automatically extended. The phrase “being extendable” means “capable of being extended,” indicating the lessor’s intention not to be bound by an automatic extension but to retain the discretion to decide whether to extend the lease. If the parties intended an automatic extension, they could have provided for a straight forty-year term or used the explicit phrase “automatically extended” as they did in the 1957 lease with the Vitans. The Court found the terms of the 1962 contract clear and unambiguous, and thus applied the literal meaning under Article 1370 of the Civil Code. However, applying Article 1670 in relation to Article 1687 of the Civil Code, an implied new lease on a month-to-month basis was created because the lessee continued occupying the property after the contract’s expiration. The lessee was ordered to vacate and turn over possession to petitioner Santi, and to pay a monthly rental of P220.00 from April 1, 1982, until vacating the premises, plus attorney’s fees. The decision of the trial court was reinstated and modified accordingly.