G.R. No. 70360 - Arevalo Gomez Corporation vs. Lao Hian Liong

On December 1, 1964, the petitioner, represented by its Vice-President Renato Arevalo, and the respondent, Andres Lao Hian Liong, executed a “Contract of Lease” concerning a property located at Magsaysay Avenue, Baguio City.

The lease was agreed upon as a fifteen-year term effective September 1, 1964 with a fixed monthly rental of P2,450.00.

An additional provision required the respondent to construct a three-storey building on the leased lot using strong materials, with the cost not less than P150,000.00 and with the petitioner contributing P45,000.00.

As the lease’s term neared its end on August 31, 1979, the parties engaged in negotiations to establish a new rental amount.

No agreement was reached regarding the renewal or adjustment of the lease terms despite discussions held prior to the contract’s expiration.

On October 2, 1979, the petitioner served the respondent with a formal written notice to vacate the premises, invoking the expiration of the lease contract.

The trial court, applying Article 1670 of the Civil Code, ruled in favor of the respondent for ejectment on the ground that his continued occupancy beyond the original lease period, coupled with the absence of a vacating notice within a statutory fifteen-day period, gave rise to an implied new lease.

The court noted that the respondent had remained in possession after August 31, 1979, and that the required notice period had lapsed before an express notice was served.

The trial court extended the lease for an additional five years (from October 1, 1979) and fixed the new monthly rental at P10,406.00.

The petitioner argued that the original lease should have automatically expired on August 31, 1979, denying any implication of tacita reconduccion.

The respondent contended for a longer extension (fifteen years) and asserted that prior communications from the petitioner suggested an indefinite right to occupy the property.

The Regional Trial Court of Baguio City later affirmed the existence of an implied renewal but modified the judgment by extending the lease for ten years (from September 1, 1979, until August 31, 1989) and setting the monthly rental at P18,600.00.

Issues regarding the admissibility of parol evidence—specifically, the term of the lease, a building permit issued after the trial court’s decision, and evidence of currency depreciation—were raised on appeal.

The petition eventually reached the Supreme Court, filed both under Rule 65 and as an appeal by certiorari under Rule 45, allowing review of the judgment even when based on a factual misapprehension.

Whether the continuation of the respondent’s possession of the leased premises after August 31, 1979, and prior to the service of a formal notice to vacate, constituted an implied renewal (tacita reconduccion) of the lease contract under Article 1670 of the Civil Code.
Whether the petitioner’s prior communications and its insistence on a higher rental amount before the lease’s expiration served as an effective conditional notice to vacate, thereby precluding any implied renewal.
Whether the actions of the parties, particularly the petitioner’s rejection of the respondent’s counter-proposals regarding the rental amount, negated the occurrence of tacita reconduccion.
The propriety of extending the lease term—five years by the trial court and ten years by the Regional Trial Court—in light of the contractual stipulations and the applicable statutory provisions.
The admissibility and impact of parol evidence and additional documentary evidence (such as the building permit and Central Bank Certification) on the determination of the lease’s renewal and the rightful rental amount.