G.R. No. 163763; November 10, 2006
MALAYAN REALTY, INC. represented by ALBERTO C. DY., Petitioner, vs. UY HAN YONG, Respondent.

FACTS

Malayan Realty, Inc. (petitioner) is the owner of an apartment unit in Manila. In 1958, it entered into a verbal lease contract with Uy Han Yong (respondent) at a monthly rental, which was periodically increased. By 2001, the monthly rental was ₱4,671.65. On July 17, 2001, petitioner sent respondent a written notice that the lease would not be renewed upon its expiration on August 31, 2001, and demanded that respondent vacate by September 5, 2001. Respondent refused to vacate, prompting petitioner to file an ejectment complaint with the Metropolitan Trial Court (MeTC). The MeTC dismissed the complaint, ruling that with respondent’s continuous occupation for over 40 years and no definite lease period shown, ejectment on the ground of termination was not proper.
On appeal, the Regional Trial Court (RTC) set aside the MeTC decision. Applying Article 1687 of the Civil Code, the RTC extended the lease for five years, considering respondent’s advanced age and long-term occupancy. It also initially awarded respondent damages, but deleted these upon petitioner’s motion for reconsideration, retaining only the lease extension. Petitioner then appealed to the Court of Appeals (CA). The CA modified the RTC decision, shortening the lease extension to only one year from the finality of its decision and increasing the rental rate by 10% per annum starting from the expiration of the original lease.

ISSUE

Whether the Court of Appeals erred in granting a one-year extension of the lease contract after its termination.

RULING

The Supreme Court granted the petition, reversing the CA and ordering respondent to vacate the property. The legal logic is anchored on the proper application of Article 1687 of the Civil Code, which governs leases with no fixed period. The Court clarified that while Article 1687 allows a court to fix a longer term for the lease under certain circumstances, this equitable power is not absolute and must be exercised judiciously. The primary purpose of this provision is to protect tenants from arbitrary ejectment, but it does not grant a perpetual right to occupy, especially when the owner has a legitimate need to recover possession.
In this case, the Court found no equitable reason to justify extending the lease. Respondent had been occupying the property for decades under a verbal lease, which was considered on a month-to-month basis due to the monthly rental payments. Petitioner validly terminated the lease by notifying respondent more than the required period before the intended effectivity. Critically, respondent never requested an extension of the lease term before or after the notice of termination, nor did he plead for such relief in his answer to the ejectment complaint. The Court held that the judicial extension under Article 1687 is not meant to be imposed when the lessee does not seek it and the lessor has duly exercised its right to terminate. Therefore, the CA and RTC erred in granting an extension. Petitioner is entitled to possession and to reasonable compensation for use, which the Court computed as a 10% annual increase in rental from September 1, 2001, until respondent vacates the premises.