G.R. No. L-13924; January 31, 1962
Jacobo Divino, plaintiff-appellee, vs. Ramona Fabie de Marcos and Ventura Marcos, defendants-appellants.

FACTS

Plaintiff Jacobo Divino purchased a house erected on a lot within the Hacienda Fabie, owned by defendant Ramona Fabie de Marcos and administered by Ventura Marcos. Divino alleged that before his purchase in 1936, he received assurances from the house’s seller and the rental collector that he could remain on the lot as long as he paid rent. He subsequently made substantial improvements to the house. In 1955, the defendants filed an ejectment case against Divino for non-payment of rent and to demand a rental increase, which was dismissed. Defendants later notified Divino of the lease’s termination by April 30, 1956. No written lease agreement existed between the parties regarding the duration or rental payment terms.
The defendants, in their answer, denied authorizing any such assurances and asserted the lease was terminated for their own convenience. They raised special defenses including lack of cause of action and res judicata from the prior ejectment case. The parties agreed to have the case decided on the pleadings. The trial court applied Article 1687 of the Civil Code and ordered defendants to execute a two-year lease contract in favor of Divino, dismissing the defendants’ counterclaim. Defendants appealed.

ISSUE

The primary issue is whether the trial court had the authority to compel the execution of a new lease contract for a fixed period after the defendants had terminated the month-to-month lease.

RULING

The Supreme Court affirmed the trial court’s application of Article 1687 in conjunction with Article 1197 of the Civil Code. The Court held that for leases with no specified period, Article 1687 grants the courts the discretion to fix a longer term for the lease when the lessee has made substantial improvements on the property and there exists a just ground for extension. The Court found such just grounds present due to Divino’s substantial investments in improvements, the length of his occupancy since 1936, and the prior assurances he received regarding his tenure.
The Court modified the trial court’s decision by specifying that the two-year extension period would commence from February 19, 1957 (the date the decision became final for Divino), and set the monthly rental at P30.00, reflecting Divino’s own offer in his pleadings which was deemed reasonable. The Court declined to order the automatic delivery of possession after the two-year period, leaving the parties to pursue appropriate legal remedies at that time. It also held that a formal new contract was unnecessary as the Court’s final decision would suffice. The Court agreed that Republic Act No. 1599 was inapplicable and found no error in the denial of attorney’s fees to either party.