art 448 nayon vs npf

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Today is Sunday, June 21, 2015 Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 170923 January 20, 2009 SULO SA NAYON, INC. and/or PHILIPPINE VILLAGE HOTEL, INC. and JOSE MARCEL E. PANLILIO, Petitioners, vs. NAYONG PILIPINO FOUNDATION, Respondent. DECISION PUNO, C.J.: On appeal are the Court of Appeals’ (CA’s) October 4, 2005 Decision 1 in CAG.R. SP No. 74631 and December 22, 2005 Resolution, 2 reversing the November 29, 2002 Decision 3 of the Regional Trial Court (RTC) of Pasay City in Civil Case No. 020133. The RTC modified the Decision 4 of the Metropolitan Trial Court (MeTC) of Pasay City which ruled against petitioners and ordered them to vacate the premises and pay their arrears. The RTC declared petitioners as builders in good faith and upheld their right to indemnity. The facts are as follows: Respondent Nayong Pilipino Foundation, a governmentowned and controlled corporation, is the owner of a parcel of land in Pasay City, known as the Nayong Pilipino Complex. Petitioner Philippine Village Hotel, Inc. (PVHI), formerly called Sulo sa Nayon, Inc., is a domestic corporation duly organized and existing under Philippine laws. Petitioner Jose Marcel E. Panlilio is its Senior Executive Vice President. On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex, consisting of 36,289 square meters, to petitioner Sulo sa Nayon, Inc. for the construction and operation of a hotel building, to be known as the Philippine Village Hotel. The lease was for an initial period of 21 years, or until May 1996. It is renewable for a period of 25 years under the same terms and conditions upon due notice in writing to respondent of the intention to renew at least 6 months before its expiration. Thus, on March 7, 1995, petitioners sent respondent a letter notifying the latter of their intention to renew the contract for another 25 years. On July 4, 1995, the parties executed a Voluntary Addendum to the Lease Agreement. The addendum was signed by petitioner Jose Marcel E. Panlilio in his official capacity as Senior Executive Vice President of the PVHI and by Chairman Alberto A. Lim of the Nayong Pilipino Foundation. They agreed to the renewal of the contract for another 25 years, or until 2021. Under the new agreement, petitioner PVHI was bound to pay the monthly rental on a per square meter basis at the rate of P 20.00 per square meter, which shall be subject to an increase of 20% at the end of every 3year period. At the time of the renewal of the lease contract, the monthly rental amounted to P 725,780.00. Beginning January 2001, petitioners defaulted in the payment of their monthly rental. Respondent repeatedly demanded petitioners to pay the arrears and vacate the premises. The last demand letter was sent on March 26, 2001. On September 5, 2001, respondent filed a complaint for unlawful detainer before the MeTC of Pasay City. The complaint was docketed as Civil Case No. 70801. Respondent computed the arrears of petitioners in the amount of twentysix million one hundred eightythree thousand two hundred twentyfive pesos and fourteen centavos (P 26,183,225.14), as of July 31, 2001. On February 26, 2002, the MeTC rendered its decision in favor of respondent. It ruled, thus: .... The court is convinced by the evidence that indeed, defendants defaulted in the payment of their rentals. It is basic that the lessee is obliged to pay the price of the lease according to the terms stipulated (Art. 1657, Civil Code). Upon the failure of the lessee to pay the stipulated rentals, the lessor may eject (sic) and treat the lease as rescinded and sue to eject the lessee (C. Vda[.] De Pamintuan v. Tiglao, 53 Phil. 1). For nonpayment of rentals, the lessor may rescind the lease, recover the back rentals and recover possession of the leased premises. . .

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  • 6/21/2015 G.R.No.170923

    http://www.lawphil.net/judjuris/juri2009/jan2009/gr_170923_2009.html 1/7

    TodayisSunday,June21,2015

    RepublicofthePhilippinesSUPREMECOURT

    Manila

    FIRSTDIVISION

    G.R.No.170923January20,2009

    SULOSANAYON,INC.and/orPHILIPPINEVILLAGEHOTEL,INC.andJOSEMARCELE.PANLILIO,Petitioners,vs.NAYONGPILIPINOFOUNDATION,Respondent.

    DECISION

    PUNO,C.J.:

    OnappealaretheCourtofAppeals(CAs)October4,2005Decision1inCAG.R.SPNo.74631andDecember22,2005Resolution,2 reversing theNovember29,2002Decision3 of theRegionalTrialCourt (RTC)ofPasayCityinCivilCaseNo.020133.TheRTCmodifiedtheDecision4oftheMetropolitanTrialCourt(MeTC)ofPasayCitywhich ruledagainst petitionersandordered them to vacate thepremisesandpay their arrears.TheRTCdeclaredpetitionersasbuildersingoodfaithandupheldtheirrighttoindemnity.

    Thefactsareasfollows:

    Respondent Nayong Pilipino Foundation, a governmentowned and controlled corporation, is the owner of aparcel of land in Pasay City, known as the Nayong Pilipino Complex. Petitioner Philippine Village Hotel, Inc.(PVHI),formerlycalledSulosaNayon,Inc.,isadomesticcorporationdulyorganizedandexistingunderPhilippinelaws.PetitionerJoseMarcelE.PanlilioisitsSeniorExecutiveVicePresident.

    On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex, consisting of 36,289 squaremeters,topetitionerSulosaNayon,Inc.fortheconstructionandoperationofahotelbuilding,tobeknownasthePhilippineVillageHotel.The leasewas foran initialperiodof21years,oruntilMay1996. It is renewable foraperiodof25yearsunderthesametermsandconditionsuponduenoticeinwritingtorespondentoftheintentionto renewat least 6months before its expiration. Thus, onMarch7, 1995, petitioners sent respondent a letternotifying the latter of their intention to renew the contract for another 25 years. On July 4, 1995, the partiesexecutedaVoluntaryAddendumtotheLeaseAgreement.TheaddendumwassignedbypetitionerJoseMarcelE.PanlilioinhisofficialcapacityasSeniorExecutiveVicePresidentofthePVHIandbyChairmanAlbertoA.LimoftheNayongPilipinoFoundation.Theyagreedtotherenewalofthecontractforanother25years,oruntil2021.Underthenewagreement,petitionerPVHIwasboundtopaythemonthlyrentalonapersquaremeterbasisatthe rateofP20.00per squaremeter,whichshall besubject toan increaseof20%at theendofevery3yearperiod.Atthetimeoftherenewaloftheleasecontract,themonthlyrentalamountedtoP725,780.00.

    Beginning January 2001, petitioners defaulted in the payment of their monthly rental. Respondent repeatedlydemandedpetitionerstopaythearrearsandvacatethepremises.ThelastdemandletterwassentonMarch26,2001.

    OnSeptember5,2001, respondent filedacomplaint forunlawfuldetainerbefore theMeTCofPasayCity.ThecomplaintwasdocketedasCivilCaseNo.70801.Respondentcomputedthearrearsofpetitionersintheamountof twentysixmillion one hundred eightythree thousand two hundred twentyfive pesos and fourteen centavos(P26,183,225.14),asofJuly31,2001.

    OnFebruary26,2002,theMeTCrendereditsdecisioninfavorofrespondent.Itruled,thus:

    ....Thecourtisconvincedbytheevidencethatindeed,defendantsdefaultedinthepaymentoftheirrentals.Itisbasic that the lessee isobliged topay thepriceof the leaseaccording to the termsstipulated (Art. 1657,CivilCode).Uponthefailureofthelesseetopaythestipulatedrentals,thelessormayeject(sic)andtreattheleaseasrescindedandsuetoejectthelessee(C.Vda[.]DePamintuanv.Tiglao,53Phil.1).Fornonpaymentofrentals,thelessormayrescindthelease,recoverthebackrentalsandrecoverpossessionoftheleasedpremises...

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    xxx

    ....Improvementsmadebyalesseesuchasthedefendantshereinonleasedpremisesarenotvalidreasonsfortheirretentionthereof.TheSupremeCourthasoccasiontoaddressasimilarissueinwhichitruledthat:"Thefact that petitioners allegedlymade repairs on the premises in question is not a reason for them to retain thepossession of the premises. There is no provision of lawwhich grants the lesseea right of retention over theleasedpremiseson that ground.Article448of theCivilCode, in relation toArticle546,whichprovides for fullreimbursementofuseful improvementsandretentionofthepremisesuntilreimbursementismade,appliesonlytoapossessoringoodfaith,i.e.,onewhobuildsonalandinthebeliefthatheistheownerthereof.Thisrightofretention does not apply to a mere lessee, like the petitioners, otherwise, it would always be in his power to"improve"hislandlordoutofthelattersproperty(JoseL.ChuaandCoSioEngvs.CourtofAppealsandRamonIbarra,G.R.No.109840,January21,1999)."

    Although the Contract of Lease stipulates that the building and all the improvements in the leased premisesbelong to thedefendants herein, suchwill not defeat the right of theplaintiff to its property as thedefendantsfailedtopaytheirrentalsinviolationofthetermsofthecontract.Atmost,defendantscanonlyinvoke[their]rightunderArticle1678oftheNewCivilCodewhichgrantsthemtherighttobereimbursedonehalfofthevalueofthebuildingupontheterminationofthelease,or,inthealternative,toremovetheimprovementsifthelessorrefusestomakereimbursement.

    Thedispositiveportionofthedecisionreadsasfollows:

    WHEREFORE,premisesconsidered, judgment ishereby rendered in favorofNayongPilipinoFoundation,andagainstthedefendantPhilippineVillageHotel,Inc[.],andallpersonsclaimingrightsunderit,orderingthelatterto:

    1.VACATEthesubjectpremisesandsurrenderpossessionthereoftoplaintiff

    2.PAYplaintiffitsrentalarrearagesinthesumofTWENTYSIXMILLIONONEHUNDREDEIGHTYTHREETHOUSANDTWOHUNDREDTWENTYFIVEPESOSAND14/100(P26,183,225.14)incurredasofJuly31,2001

    3. PAY plaintiff the sum of SEVEN HUNDRED TWENTY FIVE THOUSAND SEVEN HUNDRED EIGHTYPESOS (P725,780.00) per month starting from August 2001 and every month thereafter by way ofreasonablecompensationfortheuseandoccupationofthepremises

    4.PAYplaintiffthesumofFIFTYTHOUSANDPESOS(P50,000.00)bywayofattorneysfees[and]

    5.PAYthecostsofsuit.

    ThecomplaintagainstdefendantJoseMarcelE.Panlilioisherebydismissedforlackofcauseofaction.Thesaiddefendants counterclaim however is likewise dismissed as the complaint does not appear to be frivolous ormaliciouslyinstituted.

    SOORDERED.5

    PetitionersappealedtotheRTCwhichmodifiedtherulingoftheMeTC.Itheldthat:

    ...itisclearandundisputedthatappellantslesseeswereexpresslyrequiredtoconstructafirstclasshotelwithcompletefacilities.TheappellantswerealsounequivocallydeclaredintheLeaseAgreementastheowneroftheimprovementssoconstructed.Theywereevenexplicitlyallowedtousetheimprovementsandbuildingassecurityorcollateralon loansandcreditaccommodations that theLesseemaysecure for thepurposeof financing theconstructionofthebuildingandotherimprovements(Section2pars."A"to"B,"LeaseAgreement).Moreover,atime framewas setforth (sic) with respect to the duration of the lease initially for 21 years and renewable foranother25yearsinordertoenabletheappellantslesseestorecouptheirhugemoneyinvestmentsrelativetotheconstructionandmaintenanceoftheimprovements.

    xxx

    Consideringtherefore,theelementsofpermanencyoftheconstructionandsubstantialvalueoftheimprovementsaswellastheundispute[d]ownershipoverthelandimprovements,these,immenselyengendertheapplicationofArt. 448 of the Civil Code. The only remaining and most crucial issue to be resolved is whether or not theappellantsasbuildershaveactedingoodfaithinorderforArt.448inrelationtoArt.546oftheCivilCodemayapplywithrespecttotheirrightsoverimprovements.

    xxx

    .. . it isundeniablethattheimprovementofthehotelbuildingofappellants(sic)PVHIwasconstructedwiththewrittenconsentandknowledgeofappellee. In fact, itwasprecisely theprimarypurposeforwhich theyentered

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    intoanagreement.Thus,itcouldnotbedeniedthatappellantswerebuildersingoodfaith.

    Accordingly, andpursuant toArticle448 in relation toArt. 546of theCivilCode,plaintiffappelleehas thesoleoptionorchoice,either toappropriate thebuilding,uponpaymentofproper indemnityconsonant toArt.546orcompel the appellants to purchase the land whereon the building was erected. Until such time that plaintiffappelleehaselectedanoptionorchoice,ithasnorightofremovalordemolitionagainstappellantsunlessafterhaving selected a compulsory sale, appellants fail to pay for the land (Ignacio vs. Hilario 76 Phil. 605). This,however, is without prejudice from the parties agreeing to adjust their rights in some other way as theymaymutuallydeemfitandproper.

    ThedispositiveportionofthedecisionoftheRTCreadsasfollows:

    WHEREFORE,and inviewof the foregoing, judgment ishereby renderedmodifying thedecisionof [the]MTC,Branch45ofPasayCityrenderedonFebruary26,2002asfollows:

    1.Orderingplaintiffappelleetosubmitwithinthirty(30)daysfromreceiptofacopyofthisdecisionawrittenmanifestation of the option or choice it selected, i.e., to appropriate the improvements upon payment ofproper indemnity or compulsory sale of the land whereon the hotel building of PVHI and relatedimprovementsorfacilitieswereerected

    2.Directingtheplaintiffappelleetodesistand/orrefrainfromdoingactsinthefurtheranceorexerciseofitsrightsanddemolitionagainstappellantsunlessandafterhavingselectedtheoptionofcompulsorysaleandappellantsfailedtopay[and]purchasethelandwithinareasonabletimeoratsuchtimeasthiscourtwilldirect

    3. Ordering defendantsappellants to pay plaintiffappellee [their] arrears in rent incurred as of July 31,2001intheamountofP26,183,225.14

    4.Orderingdefendantsappellants topay toplaintiffappellee theunpaidmonthly rentals for theuseandoccupation of the premises pending this appeal from July to November 2002 only at P725,780.00 permonth

    5.ThefourthandfifthdirectivesinthedispositiveportionofthetrialcourtsdecisionincludingthatthelastparagraphthereofJMEPanlilioscomplaintisherebyaffirmed

    6.Thepartiesaredirectedtoadjusttheirrespectiverightsintheinterestofjusticeastheymaydeemfitandproperifnecessary.

    SOORDERED.6

    RespondentappealedtotheCAwhichheldthattheRTCerroneouslyappliedtherulesonaccession,asfoundinArticles448and546oftheCivilCodewhenitheldthatpetitionerswerebuildersingoodfaithand,thus,havetherighttoindemnity.TheCAheld:

    Byandlarge,respondentsareadmittedlymerelesseesofthesubjectpremisesandassuch,cannotvalidlyclaimthat theyarebuilders ingoodfaith inorder tosolicit theapplicationofArticles448and546of theCivilCode intheir favor. As it is, it is glaring error on the part of the RTC to apply the aforesaid legal provisions on thesuppositionthattheimprovements,whichareofsubstantialvalue,hadbeenintroducedontheleasedpremiseswith the permission of the petitioner. To grant the respondents the right of retention and reimbursement asbuilders ingood faithmerelybecauseof thevaluableandsubstantial improvements that they introduced to theleasedpremisesplainlycontravenesthelawandsettledjurisprudentialdoctrinesandwould,asstated,allowthelesseetoeasily"improve"thelessoroutofitsproperty.

    ....Introductionofvaluableimprovementsontheleasedpremisesdoesnotstripthepetitionerofitsrighttoavailof recourses under the lawand the lease contract itself in caseof breach thereof.Neither does it deprive thepetitioner of its right under Article 1678 to exercise its option to acquire the improvements or to let therespondentsremovethesame.

    PetitionersMotionforReconsiderationwasdenied.

    Hence,thisappeal.7

    Petitionersassignthefollowingerrors:

    I

    THE HONORABLECOURTOF APPEALSCOMMITTED AGRAVEREVERSIBLE ERROR IN NOTHOLDINGTHATPETITIONERSWEREBUILDERSINGOODFAITHOVERTHESUBSTANTIALAND

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    VALUABLE IMPROVEMENTSWHICH THEY HAD INTRODUCEDON THE SUBJECT PROPERTY,THUSCOMPELLINGTHEAPPLICATIONOFARTICLE448OFTHECIVILCODEINRELATIONTOARTICLE546OFTHESAMECODE,INSTEADOFARTICLE1678OFTHECIVILCODE.

    II

    THEHONORABLECOURTOFAPPEALSCOMMITTEDASERIOUSREVERSIBLEERRORWHENITDISREGARDED THE FACT THAT THE LEASE CONTRACT GOVERNS THE RELATIONSHIP OFTHEPARTIESANDCONSEQUENTLYTHEPARTIESMAYBECONSIDEREDTOHAVEIMPLIEDLYWAIVEDTHEAPPLICATIONOFARTICLE1678OFTHECIVILCODETOTHEINSTANTCASE.

    III

    ASSUMING ARGUENDO THAT THE PETITIONERS ARE NOT BUILDERS IN GOOD FAITH, THEHONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN ITOVERLOOKEDTHEFACTTHATRESPONDENTALSOACTEDINBADFAITHWHENITDIDNOTHONOR AND INSTEAD BREACHED THE LEASE CONTRACT BETWEEN THE PARTIES, THUSBOTHPARTIESACTEDASIFTHEYAREINGOODFAITH.

    IV

    TOSANCTIONTHEAPPLICATIONOFARTICLE1678OFTHECIVILCODEINSTEADOFARTICLE448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODEWOULD NOTONLYWREAKHAVOCANDCAUSESUBSTANTIALINJURYTOTHERIGHTSANDINTERESTSOFPETITIONER PHILIPPINE VILLAGE HOTEL, INC. WHILE RESPONDENT NAYONG PILIPINOFOUNDATION, IN COMPARISON THERETO, WOULD SUFFER ONLY SLIGHT ORINCONSEQUENTIALINJURYORLOSS,BUTALSOWOULDCONSTITUTEUNJUSTENRICHMENTON THE PART OF RESPONDENT AT GREAT EXPENSE AND GRAVE PREJUDICE OFPETITIONERS.

    V

    THEHONORABLECOURTOF APPEALSCOMMITTED AGRAVEREVERSIBLE ERROR IN NOTHOLDINGTHATTHECOURTSAQUODIDNOTACQUIREJURISDICTIONOVERTHEUNLAWFULDETAINER CASE FOR NONCOMPLIANCE WITH JURISDICTIONAL REQUIREMENTS DUE TOTHEABSENCEOFANOTICETOVACATEUPONPETITIONERS.8

    First,wesettle the issueof jurisdiction.Petitionersarguethat theMeTCdidnotacquire jurisdictiontohearanddecidetheejectmentcasebecausetheyneverreceivedanydemandfromrespondenttopayrentalsandvacatethepremises,sincesuchdemandisajurisdictionalrequisite.WereiteratetherulingoftheMeTC,RTCandCA.Contrary to theclaimofpetitioners,documentaryevidenceproved thatademand letterdatedMarch26,2001wassentbyrespondentthroughregisteredmailtopetitioners,requestingthem"topaytherentalarrearsorelseitwillbeconstrainedtofiletheappropriatelegalactionandpossesstheleasedpremises."

    Further,petitionersargumentthatthedemandletteris"inadequate"becauseitcontainednodemandtovacatetheleasedpremisesdoesnotpersuade.Wehaveruledthat:

    ....Theword"vacate"isnotatalismanicwordthatmustbeemployedinallnotices.Thealternativesinthiscaseareclearcut.Thetenantsmustpayrentalswhicharefixedandwhichbecamepayableinthepast,failingwhichtheymustmoveout.Therecanbenootherinterpretationofthenoticegiventothem.Hence,whenthepetitionersdemanded thateitherhepaysP18,000 in fivedaysoracaseofejectmentwouldbe filedagainsthim,hewasplacedonnoticetomoveoutifhedoesnotpay.Therewas,ineffect,anoticeordemandtovacate.9

    Inthecaseatbar,thelanguageofthedemandletterisplainandsimple:respondentdemandedpaymentoftherental arrears amounting to P26,183,225.14 within ten days from receipt by petitioners, or respondent will beconstrainedtofileanappropriatelegalactionagainstpetitionerstorecoverthesaidamount.Thedemandletterfurther stated that respondentwill possess the leasedpremises in caseof petitioners failure to pay the rentalarrearswithin tendays.Thus, it isclear that thedemand letter is intendedasanotice topetitioners topay therentalarrears,andanoticetovacatethepremises incaseof failureofpetitionerstoperformtheirobligationtopay.

    Second,weresolvethemainissueofwhethertherulesonaccession,asfoundinArticles448and546oftheCivilCode,applytotheinstantcase.

    Article448andArticle546provide:

    Art.448.Theownerof the landonwhichanythinghasbeenbuilt,sownorplanted ingoodfaith,shallhavethe

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    right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for inArticles 546 and548, or to oblige the onewhobuilt or planted to pay the price of the land, and the onewhosowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value isconsiderablymorethanthatof thebuildingortrees.Insuchcase,heshallpayreasonablerent, if theownerofthelanddoesnotchoosetoappropriatethebuildingortreesafterproperindemnity.Thepartiesshallagreeuponthetermsoftheleaseandincaseofdisagreement,thecourtshallfixthetermsthereof.

    Art.546.Necessaryexpensesshallbe refunded toeverypossessorbutonly thepossessor ingood faithmayretainthethinguntilhehasbeenreimbursedtherefor.

    Usefulexpensesshallberefundedonlytothepossessoringoodfaithwiththesamerightofretention,thepersonwhohasdefeatedhiminthepossessionhavingtheoptionofrefundingtheamountoftheexpensesorofpayingtheincreaseinvaluewhichthethingmayhaveacquiredbyreasonthereof.

    WeupholdtherulingoftheCA.

    ThelateSenatorArturoM.Tolentino,aleadingexpertinCivilLaw,explains:

    Thisarticle[Article448]ismanifestlyintendedtoapplyonlytoacasewhereonebuilds,plants,orsowsonlandinwhichhebelieveshimselftohaveaclaimoftitle,10andnottolandswheretheonlyinterestofthebuilder,planterorsoweristhatofaholder,suchasatenant.11

    Inthecaseatbar,petitionershavenoadverseclaimortitletotheland.Infact,aslessees,theyrecognizethattherespondentistheowneroftheland.Whatpetitionersinsististhatbecauseoftheimprovements,whichareofsubstantial value, that they have introduced on the leased premises with the permission of respondent, theyshould be considered builders in good faith who have the right to retain possession of the property untilreimbursementbyrespondent.

    WeaffirmtherulingoftheCAthatintroductionofvaluableimprovementsontheleasedpremisesdoesnotgivethe petitioners the right of retention and reimbursement which rightfully belongs to a builder in good faith.Otherwise,suchasituationwouldallowthelesseetoeasily"improve"thelessoroutofitsproperty.Wereiteratethedoctrinethatalesseeisneitherabuilderingoodfaithnorinbadfaith12thatwouldcallfortheapplicationofArticles448and546oftheCivilCode.HisrightsaregovernedbyArticle1678oftheCivilCode,whichreads:

    Art. 1678. If the lesseemakes, in good faith, useful improvementswhichare suitable to theuse forwhich theleaseisintended,withoutalteringtheformorsubstanceofthepropertyleased,thelessorupontheterminationoftheleaseshallpaythelesseeonehalfofthevalueoftheimprovementsatthattime.Shouldthelessorrefusetoreimbursesaidamount, the lesseemay remove the improvements,even though theprincipal thingmaysufferdamagethereby.Heshallnot,however,causeanymoreimpairmentuponthepropertyleasedthanisnecessary.

    Withregardtoornamentalexpenses,thelesseeshallnotbeentitledtoanyreimbursement,buthemayremovetheornamentalobjects,providednodamageiscausedtotheprincipalthing,andthelessordoesnotchoosetoretainthembypayingtheirvalueatthetimetheleaseisextinguished.

    Under Article 1678, the lessor has the option of paying onehalf of the value of the improvements which thelesseemade ingood faith,whichare suitable for theuse forwhich the lease is intended, andwhichhavenotalteredtheformandsubstanceoftheland.Ontheotherhand,thelesseemayremovetheimprovementsshouldthelessorrefusetoreimburse.

    Petitioners argue that to applyArticle 1678 to their casewould result to sheer injustice, as itwould amount togivingawaythehotelanditsotherstructuresatvirtuallybargainprices.Theyallegethatthevalueofthehotelanditsappurtenantfacilitiesamountstomorethantwobillionpesos,whilethemonetaryclaimofrespondentagainstthemonlyamountstoalittlemorethantwentysixmillionpesos.Thus,theycontendthatit istheleasecontractthatgoverns the relationshipof theparties,andconsequently, thepartiesmaybeconsidered tohave impliedlywaivedtheapplicationofArticle1678.

    Wecannotsustainthislineofargumentbypetitioners.Basicisthedoctrinethatlawsaredeemedincorporatedineachandeverycontract.Existinglawsalwaysformpartofanycontract.Further,theleasecontractinthecaseatbarshowsnospecialkindofagreementbetweenthepartiesastohowtoproceedincasesofdefaultorbreachofthe contract. Petitioners maintain that the lease contract contains a default provision which does not giverespondenttherighttoappropriatetheimprovementsnorevictpetitionersincasesofcancellationorterminationofthecontractduetodefaultorbreachofitsterms.Theyciteparagraph10oftheleasecontract,whichprovidesthat:

    10.DEFAULT. . . .Defaultshallautomatically takeplaceuponthefailureof theLESSEEtopayorperformitsobligationduring the time fixedherein for suchobligationswithout necessityof demand,or, if no time is fixed,after90daysfromthereceiptofnoticeordemandfromtheLESSOR...

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    Incaseofcancellationorterminationofthiscontractduetothedefaultorbreachofitsterms,theLESSEEwillpayallreasonableattorneysfees,costsandexpensesoflitigationthatmaybeincurredbytheLESSORinenforcingitsrightsunderthiscontractoranyofitsprovisions,aswellasallunpaidrents,fees,charges,taxes,assessmentandotherswhichtheLESSORmaybeentitledto.

    Petitioners assert that respondent committed a breach of the lease contract when it filed the ejectment suitagainst them.However,wefindnothing in theabovequotedprovision thatprohibits respondent toproceedthewayitdidinenforcingitsrightsaslessor.Itcanrightfullyfileforejectmenttoevictpetitioners,asitdidbeforethecourtaquo.

    INVIEWWHEREOF,petitionersappealisDENIED.TheOctober4,2005DecisionoftheCourtofAppealsinCAG.R.SPNo.74631anditsDecember22,2005ResolutionareAFFIRMED.Costsagainstpetitioners.

    SOORDERED.

    REYNATOS.PUNOChiefJustice

    WECONCUR:

    ANTONIOT.CARPIOAssociateJustice

    RENATOC.CORONAAssociateJustice

    ADOLFOS.AZCUNAAssociateJustice

    TERESITAJ.LEONARDODECASTROAssociateJustice

    CERTIFICATION

    Pursuant toSection 13,ArticleVIII of theConstitution, I certify that the conclusions in the above decision hadbeenreachedinconsultationbeforethecasewasassignedtothewriteroftheopinionoftheCourtsDivision.

    REYNATOS.PUNOChiefJustice

    Footnotes

    1Rollo,pp.4353.

    2Id.at5556.

    3Id.at144159.

    4Id.at138143.

    5Id.at142143.

    6Id.at158159.

    7Id.at1041.

    8Id.at2223.

    9MeTCDecision,citingGoldenGateRealtyCorporationv.IntermediateAppellateCourt,No.L74289,July31,1987,152SCRA684.

    10Tolentino,ArturoM.,CommentariesandJurisprudenceontheCivilCodeofthePhilippines,vol.II,2004,citingFlorezav.Evangelista,96SCRA130Appliedtocoowner:DelCampov.Abesia,No.L49219,April15,1988,160SCRA379.

    11Alburov.Villanueva,7Phil.277(1907)DeLaureanov.Adil,No.L43345,July29,1976,72SCRA148Floreza v. Evangelista,No. L25462, February 21, 1980, 96SCRA130Balucanag v. Francisco,No. L

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    33422,May30,1983,122SCRA498SouthwesternUniversityv.Salvador,No.L45013,May28,1979,90SCRA318Castillov.CourtofAppeals,No.L48290,September29,1983,124SCRA808.

    12SouthwesternUniversityv.Salvador,No.L45013,May28,1979,90SCRA318,ConcurringOpinionofJ.MelencioHerrera,citingAlburov.Villanueva,7Phil.277.

    TheLawphilProjectArellanoLawFoundation