G.R. No. 118381 . October 26, 1999.
T & C DEVELOPMENT CORP., petitioner, vs. COURT OF APPEALS and ELIGIO DE GUZMAN, respondents.

FACTS

Petitioner T & C Development Corporation is the owner-lessor of an apartment building in Quiapo, Manila. Private respondent Eligio de Guzman is the lessee of a unit, paying a monthly rental of P700.00. The ground floor is used for an optical clinic and a watch repair service, while the second floor is used as the family residence. On October 31, 1992, petitioner informed private respondent that effective November 1, 1992, the monthly rental would be increased to P2,000.00, and if he did not agree, the lease would be considered ipso facto terminated. After negotiations, the parties agreed to increase the monthly rent to P1,800.00. However, from November 1, 1992 until February 1993, private respondent failed to pay the increased rent despite demands. Instead, he sent notice that the monthly rentals of P700.00 for that period had been deposited in his account at a bank, and petitioner could claim the amount. Petitioner filed an ejectment case. The Metropolitan Trial Court ruled for petitioner. The Regional Trial Court reversed and dismissed the complaint. The Court of Appeals affirmed the RTC with modification, ordering payment of a specific rental amount.

ISSUE

1. Whether non-payment of the monthly rental for more than three months is a valid ground for ejectment.
2. Whether the subject premises is residential and thus covered by the Rent Control Law.
3. Whether the Court of Appeals erred in fixing the monthly rental rate.

RULING

1. Yes. The Court of Appeals erred in dismissing the ejectment case. Under Article 1673 of the Civil Code, lack of payment of the stipulated price is a ground for ejectment. The Rent Control Law (B.P. Blg. 877, as amended) also allows ejectment for arrears in payment of rent for a total of three months. The trial court found that private respondent failed to pay the monthly rental of P1,800.00 from November 1992 to February 16, 1993, despite demands. Depositing the rents in arrears in a bank account under private respondent’s name does not constitute valid consignation. What private respondent should have done, given that the increase exceeded the allowable limit, was to deposit the previous rent of P700.00 either with judicial authorities or in a bank in the name of and with notice to petitioner. Failure to pay for more than three months constitutes a valid ground for ejectment.
2. Yes, the premises is residential. The decisive consideration is whether the premises are used principally for dwelling purposes. It is undisputed that private respondent and his family use the second floor as their residence. Under the Rent Control Law, a “residential unit” includes those used for home industries, retail stores, and other business purposes if the owner and his family actually live therein and use it principally for dwelling purposes, provided the initial capitalization does not exceed P5,000.00. The ground floor business use does not negate its classification as a residential unit covered by the law.
3. Yes. The Court of Appeals correctly applied the Rent Control Law but erred in its computation. The lawful monthly rental should be computed based on the allowable increases under the applicable laws. The rental as of December 31, 1991 was P700.00. Applying the 20% increase for 1992, the rental for 1992 is P840.00. For 1993, applying another 20% increase on P840.00, the rental is P1,008.00. However, since private respondent failed to pay the rent for more than three months, ejectment is justified. The proper relief is to order private respondent to pay the rentals in arrears at the lawful rate and to vacate the premises.