G.R. No. 95146 - Spouses Fermin vs. Court of Appeals

On March 15, 1976, spouses Roberto E. Fermin and Maylinda Ferraren (plaintiffs/petitioners) entered into a contract of lease with spouses Meliton P. Alpas, Jr. and Lucy D. Alpas (defendants/respondents) covering a 375-square meter parcel of land located at No. 157 Pinatubo Street, Mandaluyong, Metro Manila.
The lease was for a term of ten (10) years with a provision for renewal for an additional ten (10) years upon mutual agreement.
The agreed rental was fixed at P5,000.00 per annum, subject to a 10% increase at the end of each five-year period from the effective date of the lease.

The contract stated that renewability is contingent on the mutual agreement of the parties.
During the renewal period after the first ten (10) years, the lessee had the option to terminate the lease provided a written notice of at least 180 days is given.
Upon termination after the first term, permanent improvements made by the lessee would pass to the lessors without obligation of reimbursement.
The contract granted the lessee priority to purchase the property if the lessors opted to sell.

Prior to the expiration of the initial 10-year term, the defendants manifested their desire to renew by sending a prepared lease agreement already signed by them, which was not signed or returned by the petitioners.
On May 31, 1986, AGRA & Co., Inc.—acting as the collection agent for the petitioners—collected P1,800.00 from the defendants as partial payment covering the period from March 15, 1986 to March 15, 1987.

Roberto Fermin, while in the United States in October 1980, executed a General Power of Attorney (with Maylinda Ferraren’s marital consent) appointing his mother, Eduviges Espinas vda. de Martin, to supervise his properties in the Philippines.
On November 14, 1985, Eduviges E. Fermin, acting also as attorney-in-fact for Roberto and his other siblings, entered into a Property Administration Agreement with AGRA & Co., Inc.
Subsequently, Key Management Corporation was appointed as attorney-in-fact for the administration of the leased premises and for rental collection, as evidenced in letters dated early March 1987.

On March 12, 1987, Key Management Corporation unilaterally informed defendant Meliton Alpas that the lease was terminated effective April 18, 1987.
On March 17, 1987, defendant Alpas, through counsel, replied asserting that the lease had already been renewed for another 10-year term effective March 16, 1986, and tendered a payment of P10,682.50 covering rentals from March 16, 1986 to March 15, 1988, including interest on arrears.
Key Management Corporation acknowledged receipt of the payment on April 20, 1987 while applying it to the accrued rentals, leading to an outstanding balance determination.
Additional communications occurred in May 1987 where defendants objected to the application of the payment and reiterated the renewal claim.

On August 10, 1987, petitioners filed a complaint for ejectment in the Metropolitan Trial Court of Mandaluyong for the defendants’ refusal to agree to a proposed increased rental of P2,000.00 per month for the renewal.
The trial court rendered a decision dismissing the complaint on April 14, 1988.
The Regional Trial Court of Pasig, in its decision dated October 23, 1989, set aside the dismissal by ordering the defendants to vacate and pay rentals at P5,500.00 for the period March 15, 1986 to March 17, 1987, and P2,000.00 per month thereafter.
A motion for reconsideration by the respondents was denied, and subsequently, the Court of Appeals reinstated the trial court’s dismissal decision on August 31, 1990.
The petition for review raised issues pertaining to the proper interpretation of renewal, the application of contractual rental terms, and the period applicable to the lease—whether it should follow the original 10-year term or a year-to-year basis.

Setting aside the Regional Trial Court decision dated October 23, 1989 that favored petitioners.
Reinstating the trial court’s dismissal decision dated April 14, 1989 which dismissed the complaint for ejectment on the ground that it was premature or lacked cause of action.

The period of the implied new lease (if one was created) is the same as the original ten (10) year contract term instead of occurring on a year-to-year basis as provided by Article 1670 in relation to Article 1687 of the Civil Code.