Verbal Lease with Definite Period: When Courts Cannot Extend the Term

Verbal Lease with Definite Period: When Courts Cannot Extend the Term

A lease agreement need not always be in writing to be valid. In Philippine law, a verbal contract of lease on a month-to-month basis is recognized and enforceable. However, the recent Supreme Court decision in La Jolla, Inc. v. Court of Appeals (G.R. No. 115851, June 20, 2001) clarifies an important limit: courts cannot extend the term of such a lease under Article 1687 of the Civil Code because a month-to-month verbal lease is considered a lease with a definite period.

The Facts of the Case

Pelagia Viray de Aguilar occupied a portion of a building in Manila under a verbal sub-lease from a certain Leon Co Santos, paying rent on a month-to-month basis. When the property was sold to La Jolla, Inc. in 1964, the new owner notified her of the termination of the lease and demanded that she vacate the premises.

Over the years, La Jolla filed three separate ejectment suits against Viray de Aguilar. In the third ejectment case filed in 1989, the Metropolitan Trial Court ruled in favor of La Jolla, ordering Viray de Aguilar to vacate the premises and pay reasonable compensation for its use. On appeal, however, the Court of Appeals modified the decision by extending the lease for a period of two years from the finality of the decision, citing Article 1687 of the Civil Code.

The Issue

The core issue before the Supreme Court was whether the Court of Appeals erred in extending the period of the lease when the lease was for a definite period—specifically, a verbal month-to-month lease.

The Ruling

The Supreme Court ruled in favor of La Jolla, Inc. and deleted the two-year extension granted by the Court of Appeals. The Court held that a verbal contract of lease on a month-to-month basis is a lease with a definite period, which expires after the last day of any given thirty-day period upon proper demand and notice by the lessor to vacate.

Article 1687 Does Not Apply

Article 1687 of the Civil Code provides that when no period for the lease has been fixed, courts may fix a longer term if the lessee has occupied the premises for over one year. The Court emphasized that this potestative or discretionary power of the courts applies only to cases where there is no period fixed by the parties.

Since the lease in this case had a definite period—month-to-month—the Court of Appeals should not have extended it. The Court also noted that Article 1675 of the Civil Code excludes cases falling under Article 1673 (which allows the lessor to judicially eject the lessee when the agreed period has expired) from those where courts may fix a longer period under Article 1687.

Equity Cannot Override Contractual Terms

The Court rejected the appellate court's reliance on equity and the length of the lessee's stay. While Viray de Aguilar had been a tenant for over 45 years and had not defaulted on rent, the Court held that fairness and equity cannot justify depriving the owner of the full use of its property for an extended period. The Court observed that since the case had been pending for nearly seven years, the lessee had effectively obtained a long extension already—sufficient time to find another place.

Practical Takeaways

• A verbal month-to-month lease is a lease with a definite period. It expires at the end of each month upon proper demand and notice to vacate.
• Article 1687 of the Civil Code applies only to leases without a fixed period. Courts cannot use it to extend a lease that has a definite term.
• Lessors may file ejectment cases when the lease period expires. Article 1673 of the Civil Code allows judicial ejectment of the lessee when the agreed period has ended.
• Length of occupancy does not justify extending a definite lease. Even long-term tenants may be ejected when the lease period has expired.
• Lessees should secure written leases with clear terms. A written contract provides clarity on the period of the lease and the rights and obligations of both parties.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.