Verbal Leases and Ejectment: When Can a Tenant Be Evicted in the Philippines

A tenant who occupies commercial space without a signed lease may believe the arrangement protects it. The Supreme Court has held otherwise. In Materrco, Inc. v. First Landlink Asia Development Corporation (G.R. No. 175687, November 28, 2007), the Court affirmed the eviction of a department store operator that had occupied roughly half of a Pasay City mall, after the courts found that no valid written lease existed and that the lease was merely verbal and month-to-month.

The case matters because it shows how a lease is terminated when the parties never signed a contract — and how far an ejectment court may go in deciding the dispute.

What happened in the case

First Landlink Asia Development Corporation (FLADC) owned and operated Masagana Citimall in Pasay City. Materrco, Inc. (MATERRCO) ran a department store and supermarket occupying about half of the mall's leasable space. The two companies were originally owned by the same family group, but control of FLADC later passed to a group of investors, and relations between the camps soured. A separate corporate dispute between them reached the Supreme Court in Ong Yong v. Tiu (448 Phil. 860, 2003), which upheld the investors' side.

In November 1996, FLADC sued MATERRCO for ejectment before the Metropolitan Trial Court of Pasay City. FLADC claimed the parties had entered into a verbal lease in September 1994, that a written contract was sent to MATERRCO but never returned, and that MATERRCO had failed to pay rentals, electricity, water, air-conditioning, and common area charges despite repeated demands. A demand letter dated September 9, 1996 asked MATERRCO to vacate and settle its accounts.

MATERRCO answered that the verbal lease had been reduced to writing in a Contract of Lease dated December 16, 1993, that it had paid according to that contract, and that FLADC had no right to eject it.

What the courts found

The MeTC found serious doubts about the authenticity of the contract MATERRCO presented. It concluded that there was no written lease between the parties and that the lease was verbal and on a month-to-month basis under Article 1687 of the Civil Code. The Court's decision cites that article for the month-to-month rule; the full text of the provision is not reproduced in the library copy of the decision, so it is not quoted here.

Both the MeTC and the Regional Trial Court found that the parties never agreed on rentals, common area charges, and other fees, and that FLADC terminated the month-to-month lease through its September 9, 1996 demand letter. The Court of Appeals and the Supreme Court affirmed.

The rules the Court applied

Three points of law stand out.

A verbal lease with no fixed period is month-to-month. The Court held that where no written contract was proven and the rent was paid monthly, the lease was on a verbal month-to-month basis under Article 1687 of the Civil Code. Such a lease may be terminated upon demand.

Ejectment courts may rule on lease and ownership questions — provisionally. The Court held that in ejectment proceedings, the trial court may decide, as an incident of the main issue of physical possession, whether a lease contract exists, how long it runs, and whether it has expired. Citing Consing v. Jamandre (G.R. No. L-27674, May 12, 1975), the Court explained that while the only issue in ejectment is possession de facto, the court may receive evidence on title or ownership solely to determine the character and extent of possession. Such a ruling is provisional and does not bar a separate action to enforce a lease contract.

Courts may fix reasonable compensation after a lease ends. Because the parties never agreed on rent after termination, the lower courts fixed reasonable compensation for MATERRCO's continued use and occupation. The Court upheld this, citing Limcay v. Court of Appeals (G.R. No. 78161, October 21, 1992), which held that the rental stipulated in an expired lease may no longer reflect the reasonable value of the premises. The Court also upheld the award of legal interest at 6% per annum, following Eastern Shipping Lines v. Court of Appeals (G.R. No. 97412, July 12, 1994).

The Court rejected MATERRCO's argument that the award exceeded what FLADC prayed for. Under Section 5, Rule 10 of the Rules of Court, issues tried with the parties' consent are treated as if raised in the pleadings. FLADC had presented other tenants' lease contracts to show that its claimed rate was reasonable and lower than what others paid.

Practical takeaways

• A lease without a fixed term and with monthly rent is generally treated as month-to-month under Article 1687 of the Civil Code, and can be ended by demand.
• A tenant who claims a written lease must be able to produce it. Failure to return or furnish the contract can undermine the claim that it governs the parties' rights.
• In ejectment cases, the court may provisionally rule on whether a lease exists and even on ownership, but only to resolve who is entitled to physical possession.
• After a lease ends, the tenant may be ordered to pay reasonable compensation for continued use of the premises, not merely the old contract rate.
• Factual findings of the trial court, affirmed by the appellate court, are generally conclusive on the Supreme Court and will not be re-weighed on appeal.

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