[G.R. No. 122544.

January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA,

ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND
A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners,
vs. COURT OF APPEALS and OVERLAND EXPRESS LINES,
INC., respondents.

[G.R. No. 124741. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA,

ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND
A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners,
vs. COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and
OVERLAND EXPRESS LINES, INC., respondents.

DECISION
MARTINEZ, J.:

Two consolidated petitions were filed before us seeking to set aside and annul the decisions
and resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was
juxtaposed with procedural intricacies which finally found its way to this Court.

G. R. NO. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a
Contract of Lease with Option to Buy with petitioners[1] (lessors) involving a 1,755.80 square
meter parcel of land situated at corner MacArthur Highway and South "H" Street, Diliman,
Quezon City. The term of the lease was for one (1) year commencing from May 16, 1974 up to
May 15, 1975. During this period, private respondent was granted an option to purchase for the
amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with a
monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per month
effective June 1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on
November 10, 1976 before the then City Court (now Metropolitan Trial Court) of Quezon City,
Branch VIII. On November 22, 1982, the City Court rendered judgment[2] ordering private
respondent to vacate the leased premises and to pay the sum of P624,000.00 representing rentals
in arrears and/or as damages in the form of reasonable compensation for the use and occupation
of the premises during the period of illegal detainer from June 1976 to November 1982 at the
monthly rental of P8,000.00, less payments made, plus 12% interest per annum from November
18, 1976, the date of filing of the complaint, until fully paid, the sum of P8,000.00 a month
starting December 1982, until private respondent fully vacates the premises, and to
pay P20,000.00 as and by way of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a restraining order
enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction of
the City Court.
On September 26, 1984, the then Intermediate Appellate Court[3] (now Court of Appeals)
rendered a decision[4] stating that:

"x x x, the alleged question of whether petitioner was granted an extension

of the option to buy the property; whether such option, if any, extended the
lease or whether petitioner actually paid the alleged P300,000.00 to Fidela
Dizon, as representative of private respondents in consideration of the option
and, whether petitioner thereafter offered to pay the balance of the supposed
purchase price, are all merely incidental and do not remove the unlawful
detainer case from the jurisdiction of respondent court. In consonance with the
ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be
raised and decided in the unlawful detainer suit as, to rule otherwise, would be
a violation of the principle prohibiting multiplicity of suits. (Original Records,
pp. 38-39)."

The motion for reconsideration was denied. On review, this Court dismissed the petition in a
resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion for
reconsideration in a resolution dated September 9, 1985.[5]
On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of
Quezon City (Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period
for Obligation with prayer for the issuance of a restraining order pending hearing on the prayer
for a writ of preliminary injunction. It sought to compel the execution of a deed of sale pursuant
to the option to purchase and the receipt of the partial payment, and to fix the period to pay the
balance. In an Order dated October 25, 1985, the trial court denied the issuance of a writ of
preliminary injunction on the ground that the decision of the then City Court for the ejectment of
the private respondent, having been affirmed by the then Intermediate Appellate Court and the
Supreme Court, has become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC of Quezon
City, Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment
of and Relief from Judgment with injunction and damages. In its decision[6] dated May 12, 1986,
the trial court dismissed the complaint for annulment on the ground of res judicata, and the writ
of preliminary injunction previously issued was dissolved. It also ordered private respondent to
pay P3,000.00 as attorney's fees. As a consequence of private respondent's motion for
reconsideration, the preliminary injunction was reinstated, thereby restraining the execution of
the City Court's judgment on the ejectment case.
The two cases were thereafter consolidated before the RTC of Quezon City, Branch 77. On
April 28, 1989, a decision[7] was rendered dismissing private respondent's complaint in Civil
Case No. Q-45541 (specific performance case) and denying its motion for reconsideration in
Civil Case No. 46487 (annulment of the ejectment case). The motion for reconsideration of said
decision was likewise denied.
On appeal,[8] respondent Court of Appeals rendered a decision[9] upholding the jurisdiction of
the City Court of Quezon City in the ejectment case. It also concluded that there was a perfected
contract of sale between the parties on the leased premises and that pursuant to the option to buy
agreement, private respondent had acquired the rights of a vendee in a contract of sale. It opined
that the payment by private respondent of P300,000.00 on June 20, 1975 as partial payment for
the leased property, which petitioners accepted (through Alice A. Dizon) and for which an
official receipt was issued, was the operative act that gave rise to a perfected contract of sale, and
that for failure of petitioners to deny receipt thereof, private respondent can therefore assume that
Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in
their behalf. The Court of Appeals went further by stating that in fact, what was entered into was
a "conditional contract of sale" wherein ownership over the leased property shall not pass to the
private respondent until it has fully paid the purchase price. Since private respondent did not
consign to the court the balance of the purchase price and continued to occupy the subject
premises, it had the obligation to pay the amount of P1,700.00 in monthly rentals until full
payment of the purchase price. The dispositive portion of said decision reads:

"WHEREFORE, the appealed decision in Case No. 46487 is

AFFIRMED. The appealed decision in Case No. 45541 is, on the other hand,
ANNULLED and SET ASIDE. The defendants-appellees are ordered to
execute the deed of absolute sale of the property in question, free from any lien
or encumbrance whatsoever, in favor of the plaintiff-appellant, and to deliver to
the latter the said deed of sale, as well as the owner's duplicate of the certificate
of title to said property upon payment of the balance of the purchase price by
the plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00 per
month from June 1976, plus 6% interest per annum, until payment of the
balance of the purchase price, as previously agreed upon by the parties.

SO ORDERED."

Upon denial of the motion for partial reconsideration (Civil Case No. Q-45541) by
respondent Court of Appeals,[10] petitioners elevated the case via petition
for certiorari questioning the authority of Alice A. Dizon as agent of petitioners in receiving
private respondent's partial payment amounting to P300,000.00 pursuant to the Contract of Lease
with Option to Buy. Petitioners also assail the propriety of private respondent's exercise of the
option when it tendered the said amount on June 20, 1975 which purportedly resulted in a
perfected contract of sale.

G. R. NO. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil
Case No. 38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of
Quezon City, Branch 38, for execution of the judgment[11] dated November 22, 1982 which was
granted in a resolution dated June 29, 1992. Private respondent filed a motion to reconsider said
resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary
injunction and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed
in a resolution dated September 16, 1992 on the ground that the same was a refiled case
previously dismissed for lack of merit. On November 26, 1992, entry of judgment was issued by
this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in
Civil Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the
trial court ordered the issuance of a third alias writ of execution. In denying private respondent's
motion for reconsideration, it ordered the immediate implementation of the third writ of
execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of
Quezon City, Branch 104 a petition for certiorari and prohibition with preliminary
injunction/restraining order (SP. PROC. No. 93-18722) challenging the enforceability and
validity of the MTC judgment as well as the order for its execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an order[12] granting the
issuance of a writ of preliminary injunction upon private respondent's posting of an injunction
bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial reconsideration,
petitioners filed a petition[13] for certiorari and prohibition with a prayer for a temporary
restraining order and/or preliminary injunction with the Court of Appeals. In its decision,[14] the
Court of Appeals dismissed the petition and ruled that:

"The avowed purpose of this petition is to enjoin the public respondent

from restraining the ejectment of the private respondent. To grant the
petition would be to allow the ejectment of the private respondent. We
cannot do that now in view of the decision of this Court in CA-G.R. CV
Nos. 25153-54. Petitioners' alleged right to eject private respondent has
been demonstrated to be without basis in the said civil case. The petitioners
have been shown, after all, to have no right to eject private respondents.
 WHEREFORE, the petition is DENIED due course and is accordingly
DISMISSED.

SO ORDERED."[15]

Petitioners' motion for reconsideration was denied in a resolution[16] by the Court of Appeals
stating that:

"This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the
plaintiff-appellant (private respondent herein) acquired the rights of a vendee in
a contract of sale, in effect, recognizing the right of the private respondent to
possess the subject premises. Considering said decision, we should not allow
ejectment; to do so would disturb the status quo of the parties since the
petitioners are not in possession of the subject property. It would be unfair and
unjust to deprive the private respondent of its possession of the subject property
after its rights have been established in a subsequent ruling.

WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED."[17]

Hence, this instant petition.

We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent from the subject
premises for non-payment of rentals. The term of the Contract of Lease with Option to Buy was
for a period of one (1) year (May 16, 1974 to May 15, 1975) during which the private respondent
was given an option to purchase said property at P3,000.00 per square meter. After the expiration
thereof, the lease was for P3,000.00 per month.
Admittedly, no definite period beyond the one-year term of lease was agreed upon by
petitioners and private respondent. However, since the rent was paid on a monthly basis, the
period of lease is considered to be from month to month in accordance with Article 1687 of the
New Civil Code.[18] Where the rentals are paid monthly, the lease, even if verbal may be deemed
to be on a monthly basis, expiring at the end of every month pursuant to Article 1687, in relation
to Article 1673 of the Civil Code.[19] In such case, a demand to vacate is not even necessary for
judicial action after the expiration of every month.[20]
When private respondent failed to pay the increased rental of P8,000.00 per month in June
1976, the petitioners had a cause of action to institute an ejectment suit against the former with
the then City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the
ejectment suit. The filing by private respondent of a suit with the Regional Trial Court
for specific performance to enforce the option to purchase did not divest the then City Court of
its jurisdiction to take cognizance over the ejectment case. Of note is the fact that the decision of
the City Court was affirmed by both the Intermediate Appellate Court and this Court.
 Second. Having failed to exercise the option within the stipulated one-year period, private
respondent cannot enforce its option to purchase anymore. Moreover, even
assuming arguendo that the right to exercise the option still subsists at the time private
respondent tendered the amount on June 20, 1975, the suit for specific performance to enforce
the option to purchase was filed only on October 7, 1985 or more than ten (10) years after
accrual of the cause of action as provided under Article 1144 of the New Civil Code.[21]
In this case, there was a contract of lease for one (1) year with option to purchase. The
contract of lease expired without the private respondent, as lessee, purchasing the property but
remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on a
monthly basis. The other terms of the original contract of lease which are revived in the implied
new lease under Article 1670 of the New Civil Code[22] are only those terms which are germane
to the lessees right of continued enjoyment of the property leased.[23] Therefore, an implied new
lease does not ipso facto carry with it any implied revival of private respondent's option to
purchase (as lessee thereof) the leased premises. The provision entitling the lessee the option to
purchase the leased premises is not deemed incorporated in the impliedly renewed contract
because it is alien to the possession of the lessee. Private respondents right to exercise the option
to purchase expired with the termination of the original contract of lease for one year. The
rationale of this Court is that:

This is a reasonable construction of the provision, which is based on the presumption

that when the lessor allows the lessee to continue enjoying possession of the property
for fifteen days after the expiration of the contract he is willing that such enjoyment
shall be for the entire period corresponding to the rent which is customarily paid in
this case up to the end of the month because the rent was paid monthly.Necessarily, if
the presumed will of the parties refers to the enjoyment of possession the presumption
covers the other terms of the contract related to such possession, such as the amount
of rental, the date when it must be paid, the care of the property, the responsibility for
repairs, etc. But no such presumption may be indulged in with respect to special
agreements which by nature are foreign to the right of occupancy or enjoyment
inherent in a contract of lease.[24]

Third. There was no perfected contract of sale between petitioners and private
respondent. Private respondent argued that it delivered the check of P300,000.00 to Alice A.
Dizon who acted as agent of petitioners pursuant to the supposed authority given by petitioner
Fidela Dizon, the payee thereof. Private respondent further contended that petitioners filing of
the ejectment case against it based on the contract of lease with option to buy holds petitioners in
estoppel to question the authority of petitioner Fidela Dizon. It insisted that the payment
of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option
to buy.
Under Article 1475 of the New Civil Code, the contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object of the contract and upon the
price. From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts. Thus, the elements of a contract of sale are
consent, object, and price in money or its equivalent. It bears stressing that the absence of any of
these essential elements negates the existence of a perfected contract of sale. Sale is a consensual
contract and he who alleges it must show its existence by competent proof.[25]
In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to
petitioners (thru Alice A. Dizon) on the erroneous presumption that the said amount tendered
would constitute a perfected contract of sale pursuant to the contract of lease with option to
buy. There was no valid consent by the petitioners (as co-owners of the leased premises) on the
supposed sale entered into by Alice A. Dizon, as petitioners alleged agent, and private
respondent. The basis for agency is representation and a person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent.[26] As provided in Article
1868 of the New Civil Code,[27] there was no showing that petitioners consented to the act of
Alice A. Dizon nor authorized her to act on their behalf with regard to her transaction with
private respondent. The most prudent thing private respondent should have done was to ascertain
the extent of the authority of Alice A. Dizon. Being negligent in this regard, private respondent
cannot seek relief on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals,[28] we explained the rule in dealing with an
agent:

Every person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent. If he does not make such inquiry, he is chargeable
with knowledge of the agents authority, and his ignorance of that authority will not be
any excuse. Persons dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal, to
ascertain not only the fact of the agency but also the nature and extent of the authority,
and in case either is controverted, the burden of proof is upon them to establish it.

For the long years that private respondent was able to thwart the execution of the ejectment
suit rendered in favor of petitioners, we now write finis to this controversy and shun further delay
so as to ensure that this case would really attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision
dated March 29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54,
as well as the decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-
G.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for immediate execution of the
judgment dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now
Metropolitan Trial Court) of Quezon City, Branch VIII as affirmed in the decision dated
September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals) and in the
resolution dated June 19, 1985 of this Court.
However, petitioners are ordered to REFUND to private respondent the amount
of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.
SO ORDERED.