G.R. No. 215922 . October 01, 2018
THELMA C. MULLER, GRACE M. GRECIA, KURT FREDERICK FRITZ C. MULLER, AND HOPE C. MULLER, IN SUBSTITUTION OF THE LATE FRITZ D. MULLER, PETITIONERS, VS. PHILIPPINE NATIONAL BANK, RESPONDENT.

FACTS

Spouses Fritz and Thelma Muller were lessees of two parcels of land owned by Philippine National Bank (PNB) in Iloilo City. Their lease expired on June 1, 1987, and they had accrued rental arrears. PNB sent a demand letter on May 26, 1987, for the arrears and denied the spouses’ subsequent requests to renew the lease or purchase the property. Despite demands to vacate, the Mullers remained in possession. On July 17, 2006, PNB sent a final demand letter for accumulated rentals from June 1984 to June 2006. After the Mullers failed to comply, PNB filed an ejectment case. The Municipal Trial Court in Cities (MTCC) ruled in favor of PNB, ordering the Mullers to vacate and pay accrued rentals. The Mullers appealed to the Regional Trial Court (RTC).
The RTC modified the MTCC decision, ruling that in an unlawful detainer case, the reckoning point for the award of reasonable compensation for use and occupancy is the date of the last demand (June 17, 2006), not the initial demand. It also held that PNB’s claim for rentals prior to this last demand had prescribed. The RTC thus reduced the awarded monthly rental. PNB appealed to the Court of Appeals (CA), which reversed the RTC. The CA held that reasonable compensation should be reckoned from the date of initial demand in 1987, that prescription did not apply because the Mullers’ possession after lease expiration was by mere tolerance, and that the MTCC properly fixed the rental value.

ISSUE

Whether the Court of Appeals erred in ruling that: (1) the reckoning point for the award of reasonable compensation for use and occupancy of the subject property is the date of initial demand, not the last demand; (2) the action to recover such compensation has not prescribed; and (3) the MTCC properly determined the rental value.

RULING

The Supreme Court denied the petition and affirmed the CA decision with modification on the interest rate. The Court clarified that in ejectment cases, the award for the use and occupancy of the property, whether termed as rental or reasonable compensation, is incidental to the main issue of possession. Jurisprudence establishes that such compensation is recoverable from the time the owner made a demand for the defendant to vacate or pay. Here, PNB’s initial demand on May 26, 1987, served as the proper reckoning point, not the final demand in 2006. The Court also ruled that prescription does not apply. The Mullers’ possession after the lease expired in 1987 was by mere tolerance of PNB. Possession by tolerance is not adverse; it does not confer any right upon the possessor and does not start the running of the prescriptive period. Consequently, PNB’s right to collect compensation for the use of its property from 1987 onward had not prescribed. Finally, the Court found no error in the MTCC’s determination of the fair rental value, as it was based on the evidence presented. The Court modified the imposed interest, ruling that a 6% per annum rate shall apply from judicial demand until finality of judgment, and thereafter until full payment.