G.R. No. 163429, March 3, 2006
Johnny Josefa, Petitioner, vs. Lourdes San Buenaventura, represented by Attorneys-in-Fact, Teresita San Buenaventura and/or Raul San Buenaventura, Respondents.

FACTS

Respondent Lourdes San Buenaventura owned a parcel of land in Pasig City. Petitioner Johnny Josefa leased the property under a five-year Contract of Lease from August 1, 1990, to July 31, 1995. The contract contained a clause stating it was “renewable upon agreement of the parties.” Upon the contract’s expiry, San Buenaventura informed Josefa the lease would not be extended but offered a new lease at a higher monthly rental. Josefa refused to vacate, continued occupying the property, and paid the old rental rate, which San Buenaventura accepted for a time before demanding his ejectment.
San Buenaventura filed an unlawful detainer complaint. The Metropolitan Trial Court (MeTC) ruled in her favor, ordering Josefa to vacate and pay reasonable compensation at the old rental rate. The MeTC held the renewal clause required mutual consent, which was absent. The Regional Trial Court (RTC) reversed, dismissing the complaint. It interpreted the clause as an automatic intent to renew, rendering the “upon agreement” phrase a mere formality. The Court of Appeals (CA) reinstated the MeTC decision, prompting Josefa’s petition to the Supreme Court.

ISSUE

Whether the lease contract, containing the clause “renewable upon agreement of the parties,” was automatically renewed upon its expiration, thereby precluding an action for unlawful detainer.

RULING

The Supreme Court denied the petition and affirmed the CA decision. The legal logic centers on contract interpretation and the nature of unlawful detainer. The clause “renewable upon agreement of the parties” is clear and necessitates the mutual consent of both lessor and lessee for any renewal. It does not constitute an automatic extension or a promise to renew. Upon the contract’s fixed-term expiration, Josefa’s right to possess ceased. His continued occupation without a new agreement constituted mere tolerance by the owner, which, when later withdrawn, made his possession unlawful. The action for unlawful detainer was thus proper.
The Court rejected Josefa’s claim that his renovations created an implied renewal, noting such improvements do not alter the express terms of the contract. His possession after the lease term was by mere tolerance, and the acceptance of rentals did not create a new lease but was deemed compensation for his use and occupation. Consequently, San Buenaventura was entitled to recover possession. The Court modified the compensation, ordering Josefa to pay the reasonable value of use at the old rental rate from the complaint’s filing until he vacates, as determined by the MeTC.