G.R. No.
156038 October 11, 2010 As the actual construction went on, the respondent submitted 12 progress
SPOUSES VICTORIANO CHUNG and DEBBIE CHUNG, Petitioners,
vs.
ULANDAY CONSTRUCTION, INC.,* Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari filed by petitioners Spouses
1
Victoriano Chung and Debbie Chung (petitioners) to challenge the decision2 and
resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 61583.4
FACTUAL BACKGROUND
The facts of the case, gathered from the records, are briefly summarized below.
In February 1985, the petitioners contracted with respondent Ulanday
Construction, Inc. (respondent) to construct, within a 150-day period,5 the
concrete structural shell of the formers two-storey residential house in Urdaneta
Village, Makati City at the contract price of P3,291,142.00.6
The Contract7 provided that: (a) the respondent shall supply all the necessary
materials, labor, and equipment indispensable for the completion of the project,
except for work to be done by other contractors;8 (b) the petitioners shall pay
a P987,342.609 downpayment, with the balance to be paid in progress payments
based on actual work completed;10 (c) the Construction Manager or Architect
shall check the respondents request for progress payment and endorse it to the
petitioners for payment within 3 days from receipt; 11 (d) the petitioners shall pay
the respondents within 7 days from receipt of the Construction Managers or
Architects certificate; (e) the respondent cannot change or alter the plans,
specifications, and works without the petitioners prior written approval; 12 (f) a
penalty equal to 0.01% of the contract amount shall be imposed for each day of
delay in completion, but the respondent shall be granted proportionate time
extension for delays caused by the petitioners;13 (g) the respondent shall correct,
at its expense, defects appearing during the 12-month warranty period after the
petitioners issuance of final acceptance of work.14
Subsequently, the parties agreed to exclude from the contract the roofing and
flushing work, for P321,338.00,15reducing the contract price to P2,969,804.00. On
March 17, 1995, the petitioners paid the P987,342.60 downpayment,16 with the
balance of P1,982,461.40 to be paid based on the progress billings. While the
building permit was issued on April 10, 1995,17 actual construction started on
March 7, 1995.18
billings.19 While the petitioners settled the first 7 progress billings, amounting
to P1,270,641.59,20 payment was made beyond the seven (7)-day period provided
in the contract. The petitioner subsequently granted the respondent
a P100,000.00 cash advance,21leaving the unpaid progress billings
at P445,922.13.22
During the construction, the respondent also effected 19 change orders
without the petitioners prior written approval, amounting to P912,885.91.23 The
petitioners, however, paid P42,298.61 for Change Order No. 1 24 and partially
paid P130,000.00 for Change Order Nos. 16 and 17. 25Petitioner Debbie Chung
acknowledged in writing that the balance for Change Order Nos. 16 and 17
would be paid upon completion of the contract.26 The outstanding balance on
the change orders totaled P740,587.30.
On July 4, 1995, the respondent notified the petitioners that the delay in the
payment of progress billings delays the accomplishment of the contract
work.27 The respondent made similar follow-up letters between July 1995 to
February 1996.28 On March 28, 1996, the respondent demanded full payment for
progress billings and change orders.29 On April 8, 1996, the respondent
demanded payment of P1,310,670.56 as outstanding balance on progress billings
and change orders.30
In a letter dated April 16, 1996, the petitioners denied liability, asserting that the
respondent violated the contract provisions by, among others, failing to finish the
contract within the 150-day stipulated period, failing to comply with the
provisions on change orders, and overstating its billings.31
On May 8, 1996, the respondent filed a complaint with the Regional Trial Court
(RTC), Branch 145, Makati City, for collection of the unpaid balance of the
contract and the unpaid change orders, plus damages and attorneys fees. 32
In their answer with counterclaim,33 the petitioners complained of the
respondents delayed and defective work. They demanded payment of liquidated
damages for delay in the completion, the construction errors, loss or non-usage
of specified construction materials, unconstructed and non-completed works,
plus damages and attorneys fees.
THE RTC RULING
In a decision dated December 11, 1997, the RTC found that both parties have
34
not complied strictly with the requirements of the contract. It observed that
change orders were made without the parties prescribed written agreement, and
that each party should bear their respective costs. It noted that the respondent
could not demand from the petitioners the payment for change orders
undertaken upon instruction of the project architect without the petitioners
written approval. Applying Article 1724 of the Civil Code, the RTC found that
when the respondent performed the change orders without the petitioners
written agreement, it did so at its own risk and it could not compel the
petitioners to pay.
The RTC noted that the petitioners were nonetheless liable for P130,000.00 under
Change Order Nos. 16 and 17, because petitioner Debbie Chung ratified and
acknowledged that such amount was still due upon completion. It also noted that
the respondent should not be faulted or penalized for the delay in the
completion of the contract within the 150-day period due to the petitioners
delay in the payment of the progress billings. It found, however, that the
petitioners are liable for the construction defect on the roof leak traceable to the
shallow concrete gutter.
Thus, the RTC ordered the respondent to repair, at its expense, the defective
concrete gutter of the petitioners house and to restore other affected structures
according to the architectural plans and specifications. It likewise ordered the
petitioners to pay the respondent P629,819.84 as unpaid balance on the progress
billings and P130,000.00 as unpaid balance on the ratified change orders.
Both parties elevated the case to the CA by way of ordinary appeal under Rule 41
of the Rules of Court. The respondent averred that the RTC failed to consider
evidence of the petitioners bad faith in violating the contract, while the
petitioners argued that the RTC should have quantified the cost of the repairs
and simply ordered the respondent to reimburse the petitioners expenses.
THE CA RULING
The CA decided the appeal on June 28, 2002. 35 It found Article 1724 inapplicable
because the provision pertains to disputes arising from the higher cost of labor
and materials, while the respondent demands payment of change order billings
and there was no demand for increase in the costs of labor and materials.
Applying the principle of estoppel in pais, the appellate court noted that the
petitioners impliedly consented or tacitly ratified the change orders by payment
of several change order billings and their inaction or non-objection to the
construction of the projects covered by the change orders.
Thus, the CA affirmed the RTC decision, but increased the payment on the unpaid
balance of the change orders to P740,587.11. It likewise ordered the petitioners
to pay 6% interest on the unpaid amounts from the day of formal demand and
until the finality of the decision, and 12% interest after finality of the decision,
plus P50,000.00 as exemplary damages.
Both parties filed motions for reconsideration. On November 15, 2002, the CA
issued a resolution denying the petitioners motion for reconsideration, but
partially granting the respondents motion for reconsideration by awarding it
attorneys fees equal to 10% of the total award. 36
Hence, the petitioners came to us through the present petition.
THE PETITION
The petitioners insist that the CA should have quantified the cost of the repairs
on the defective gutter and simply ordered the respondent to reimburse the
petitioners expenses because repairing the defective gutter requires the
demolition of the existing cement gutter, the removal of the entire roofing and
the dismantling of the second floor steel trusses; they are entitled to liquidated
damages for the unjust delay in the completion of the construction within the
150-day contract period; the award of P629,819.84 for progress billings is
unwarranted since only P545,920.00 is supported by the respondents evidence;
the respondents construction errors should set-off or limit the petitioners
liability, if any; the CA misinterpreted Article 1724 of the Civil Code and
misapplied the principle of estoppel in pais since the contract specifically
provides the petitioners prior written approval for change orders; the respondent
is not entitled to exemplary damages and attorneys fees since the respondent
was at fault for the defective gutter.
THE CASE FOR THE RESPONDENT
The respondent submits that the petition is merely dilatory since it seeks to
review the lower courts factual findings and conclusions, and it raised no legal
issue cognizable by this Court. 37
THE ISSUE
The core issue is whether the CA erred in: (a) affirming the RTC decision for
payment of progress billings; (b) in increasing the amount due for change orders;
and, (c) in awarding exemplary damages and attorneys fees to the respondent.
OUR RULING
We find the petition meritorious.
This Court is not a trier of facts. However, when the inference drawn by the CA
from the facts is manifestly mistaken, as in the present case, we can review the
evidence to allow us to arrive at the correct factual conclusions based on the
record.38
Contract is the law between the parties
In contractual relations, the law allows the parties leeway and considers their
agreement as the law between them.39 Contract stipulations that are not contrary
to law, morals, good customs, public order or public policy shall be binding 40 and
should be complied with in good faith.41 No party is permitted to change his
mind or disavow and go back upon his own acts, or to proceed contrary thereto,
to the prejudice of the other party.42 In the present case, we find that both parties
failed to comply strictly with their contractual stipulations on the progress billings
and change orders that caused the delays in the completion of the project.
Amount awarded for unpaid progress billings is unsupported by evidence
There is no dispute that the petitioners failed to pay progress billings nos. 8 to
12. However, we find no basis to hold the petitioners liable for P629,819.84, the
balance of the total contract price, without deducting the discount of P18,000.00
granted by the respondent. The petitioners likewise cannot be held liable for the
balance of the total contract price because that amount is clearly unsupported by
the evidence; only P545,922.1343 is actually supported by progress billings nos. 8
to 12. Deducting the respondents P100,000.00 cash advance,44 the unpaid
progress billings amount to only P445,922.13.
Article 1724 of the Civil Code applies
The CA erred in ruling that Article 1724 of the Civil Code does not apply because
the provision pertains to disputes arising from the higher cost of labor and
materials and there was no demand for increase in the costs of labor and
materials.
Article 172445 governs the recovery of additional costs in contracts for
a stipulated price (such as fixed lump-sum contracts), and the increase in price for
additional work due to change in plans and specifications. Such added cost can
only be allowed upon the: (a) written authority from the developer or project
owner ordering or allowing the written changes in work, and (b) written
agreement of parties with regard to the increase in price or cost due to the
change in work or design modification. Compliance with these two requisites is a
condition precedent for the recovery. The absence of one or the other condition
bars the recovery of additional costs. Neither the authority for the changes made
nor the additional price to be paid therefor may be proved by any other
evidence.46
In the present case, Article I, paragraph 6, of the Contract incorporates this
provision:
The CONTRACTOR shall make no change or alteration in the plans, and
specifications as well as in the works subject hereof without the prior written
approval of the OWNER. A mere act of tolerance shall not constitute approval.47
Significantly, the respondent did not secure the required written approval of the
petitioners before making the changes in the plans, specifications and works.
Thus, for undertaking change orders without the stipulated written approval of
the petitioners, the respondent cannot claim the additional costs it incurred, save
for the change orders the petitioners accepted and paid for as discussed below.
CA misapplied the principle of estoppel in pais
The petitioners payment of Change Order Nos. 1, 16, and 17 and their non-
objection to the other change orders effected by the respondent cannot give rise
to estoppel in pais that would render the petitioners liable for the payment of all
change orders.
Estoppel in pais, or equitable estoppel, arises when one, by his acts,
representations or admissions or by his silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain
facts to exist and the other rightfully relies and acts on such beliefs so that he will
be prejudiced if the former is permitted to deny the existence of such facts.48 The
real office of the equitable norm of estoppel is limited to supplying deficiency in
the law, but it should not supplant positive law.49
In this case, the requirement for the petitioners written consent to any change or
alteration in the specifications, plans and works is explicit in Article 1724 of the
Civil Code and is deemed written in the contract between the parties.50 The
contract also expressly provides that a mere act of tolerance does not constitute
approval. Thus, the petitioners did not, by accepting and paying for Change
Order Nos. 1, 16, and 17, do away with the contractual term on change orders
nor with the application of Article 1724. The payments for Change Order Nos. 1,
16, and 17 are, at best, acts of tolerance on the petitioners part that could not
modify the contract.
Consistent with this ruling, the petitioners are still liable for the P130,000.00
balance on Change Order Nos. 16 and 17 that, to date, remain unpaid.51
Accordingly, the petitioners outstanding liabilities amount to P445,922.13 for the
unpaid progress billings and P130,000.00 for the ratified change orders, or a total
of P575,922.13.
Award of exemplary damages and attorneys fees is unwarranted.
We cannot allow the award for exemplary damages and attorneys fees. It is a
requisite in the grant of exemplary damages that the act of the offender must be
accompanied by bad faith or done in a wanton, fraudulent, or malevolent
manner.52 On the other hand, attorneys fees may be awarded only when a party
is compelled to litigate or to incur expenses to protect his interest by reason of
an unjustified act of the other party, as when the defendant acted in gross and
evident bad faith in refusing the plaintiffs plainly valid, just and demandable
claim.53We do not see the presence of these circumstances in the present case. As
previously discussed, the petitioners refusal to pay the change orders was based
on a valid ground lack of their prior written approval. There, too, is the matter
of defective construction discussed below.
Petitioners liability is set-off by respondents construction defect
We cannot sustain the lower courts order to repair the defective concrete gutter.
The considerable lapse of time between the filing of the complaint in May 1996
and the final resolution of the present case renders the order to repair at this
time highly impractical, if not manifestly absurd. Besides, under the contract, the
respondents repair of construction defects, at its expense, pertains to the 12-
month warranty period after the petitioners issuance of the final acceptance of
work.54 This provision does not apply since the petitioners have not even issued a
certificate of completion and final acceptance of work.
Under the circumstances, fairness and reason dictate that we simply order the
set-off of the petitioners contractual liabilities totaling P575,922.13 against the
repair cost for the defective gutter, pegged at P717,524.00,55 leaving the amount
of P141,601.87 still due from the respondent. Support in law for this ruling for
partial legal compensation proceeds from Articles 1278, 56 1279,57 1281,58 and
128359 of the Civil Code. In short, both parties are creditors and debtors of each
other, although in different amounts that are already due and demandable.
Monetary award is subject to legal interest
Pursuant to our definitive ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals,60 we hold that the amount of P141, 601.87 is subject to the legal interest
of 6% per annum computed from the time the RTC rendered judgment on
December 11, 1997 since it was the respondent who filed the complaint.61 After
the finality of this decision, the judgment award inclusive of interest shall bear
interest at 12% per annum until full satisfaction.
WHEREFORE, the petition is hereby GRANTED. The assailed decision and
resolution of the Court of Appeals in CA-G.R. CV Nos. 61583 are REVERSED and
SET ASIDE. The respondent is ORDERED to pay the petitioners P141,601.87
representing the balance of the repair costs for the defective gutter in the
petitioners house, with interest at 6% per annum to be computed from the date
of the filing of the complaint until finality of this decision and 12% per annum
thereafter until full payment.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 154366 November 17, 2010
CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA, Petitioners,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, JOSE TO CHIP, PATRICIO YAP
and ROGER BALILA, Respondents.
DECISION
LEONARDO DE CASTRO, J.:
This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails
1
the Resolution2 dated February 5, 2002 and the Amended Decision3 dated July 5,
2002 of the Court of Appeals in CA-G.R. CV No. 57216. In the Resolution dated
February 5, 2002, the Court of Appeals admitted the Motion for
Reconsideration4 of herein respondents Development Bank of the Philippines
(DBP), Jose To Chip, Patricio Yap and Roger Balila, notwithstanding the fact that
the same was filed more than six months beyond the reglementary period. Said
motion prayed for the reversal of the Court of Appeals Decision5 dated February
14, 2001, which affirmed the Decision6 dated April 25, 1997 of the Regional Trial
Court (RTC) of Cebu, Branch 8, in Civil Case No. CEB-10104 that ruled in favor of
petitioners. In the Amended Decision of July 5, 2002, the Court of Appeals
reversed its previous Decision dated February 14, 2001 and dismissed the
petitioners complaint for lack of merit.
The facts leading to the instant petition are as follows:
On June 2, 1981, the spouses Rudy R. Robles, Jr. and Elizabeth R. Robles entered
into a mortgage contract7with DBP in order to secure a loan from the said bank in
the amount of P500,000.00. The properties mortgaged were a parcel of land
situated in Tabunoc, Talisay, Cebu, which was then covered by Transfer Certificate
of Title (TCT) No. T- 47783 of the Register of Deeds of Cebu, together with all the
existing improvements, and the commercial building to be constructed
thereon8 (subject properties). Upon completion, the commercial building was
named the State Theatre Building.
On October 28, 1981, Rudy Robles executed a contract of lease in favor of
petitioner Cebu Bionic Builders Supply, Inc. (Cebu Bionic), a domestic corporation
engaged in the construction business, as well as the sale of hardware materials.
The contract pertinently provides:
CONTRACT OF LEASE
KNOW ALL MEN BY THESE PRESENTS:
This Lease Contract made and entered into, by and between:
RUDY ROBLES, JR., Filipino, of legal age, married and resident of 173 Maria
Cristina Ext., Cebu City, hereinafter referred to as the LESSOR,
- and -
CEBU BIONIC BUILDER SUPPLY, represented by LYDIA SIA, Filipino, of legal age,
married and with address at 240 Magallanes St., Cebu City hereinafter known as
the LESSEE;
WITNESSETH:
The LESSOR is the owner of a commercial building along Tabunok, Talisay, Cebu,
known as the State Theatre Building.
The LESSOR agrees to lease unto the LESSEE and the LESSEE accepts the lease
from the LESSOR, a portion of the ground floor thereof, consisting of one (1)
unit/store space under the following terms and conditions:
1. The LESSEE shall pay a monthly rental of One Thousand
(P1,000.00) Pesos, Philippine Currency. The rental is payable in
advance within the first five (5) days of the month, without need
of demand;
2. That the term of this agreement shall start on November 1,
1981 and shall terminate on the last day of every month
thereafter; provided however that this contract shall be
automatically renewed on a month to month basis if no notice,
in writing, is sent to the other party to terminate this agreement
after fifteen (15) days from receipt of said notice;
xxxx
9. Should the LESSOR decide to sell the property during the
term of this lease contract or immediately after the expiration of
the lease, the LESSEE shall have the first option to buy and shall
match offers from outside parties.9 (Emphases ours.)
The above contract was not registered by the parties thereto with the Registry of
Deeds of Cebu.
Subsequently, the spouses Robles failed to settle their loan obligation with DBP.
The latter was, thus, prompted to effect extrajudicial foreclosure on the subject
properties.10 On February 6, 1987, DBP was the lone bidder in the foreclosure sale
and thereby acquired ownership of the mortgaged subject properties.11 On
October 13, 1988, a final Deed of Sale12 was issued in favor of DBP.
Meanwhile, on June 18, 1987, DBP sent a letter to Bonifacio Sia, the husband of
petitioner Lydia Sia who was then President of Cebu Bionic, notifying the latter of
DBPs acquisition of the State Theatre Building. Said letter reads:
 June 18, 1987
Mr. Bonifacio Sia
Bionic Builders Inc.
State Theatre Bldg.
Tabunok, Talisay, Cebu
Sir:
This refers to the commercial space you are occupying in the acquired property
of the Bank, formerly owned by Rudy Robles, Jr.
Please be informed that said property has been acquired through foreclosure on
February 6, 1987. Considering thereat, we require you to remit the rental due for
June 1987.
If you wish to continue on leasing the property, we request you to come to the
Bank for the execution of a Contract of Lease, the salient conditions of which are
as follows:
1. The lease will be on month to month basis, for a maximum
period of one (1) year;
2. Deposit equivalent to two (2) months rental and advance of
one (1) month rental, and the remaining amount for one year
period (equivalent to 9 months rental) shall be secured by either
surety bond, cash bond or assigned time deposit;
3. That in case there is a better offer or if the property will be
subject of a purchase offer, within the term, the lessor is given
an option of first refusal, otherwise he has to vacate the
premises within thirty (30) days from date of notice.
We consider, temporarily, the current monthly rental based on the six-month
receipts, which we require you to submit, until such time when we will fix the
amount accordingly.
If the contract of lease is not executed within thirty (30) days from date hereof, it
is construed that you are not interested in leasing the premises and will vacate
within the said period.
Please be guided accordingly.
Truly yours,
(SGD)LUCILO S. REVILLAS
Branch Head13 (Emphases ours.)
On July 7, 1987, the counsel of Bonifacio Sia replied to the above letter, to wit:
July 7, 1987
Mr. Lucilo S. Revillas
Branch Head
Development Bank of the Philippines
Dear Mr. Revillas,
This has reference to your letter of 18 June 1987 which you sent to my client, Mr.
Bonifacio Sia of Cebu Bionic Builders Supply the lessee of a commercial space
of the State Theatre Bldg., located at Tabunok, Talisay, Cebu.
My client is amenable to the terms contained in your letter except the following:
1. In lieu of item no. 2 thereof, my client will deposit with your
bank the amount of P10,000.00, as assigned time deposit;
2. The 30 days notice you mentioned in your letter, (3), is too
short. My client is requesting for at least 60 days notice.
I sincerely hope that you will give due course to this request.
Thank you.
Truly yours,
(SGD) ANASTACIO T. MUNTUERTO, JR.14
Thereafter, on November 14, 1989, a Certificate of Time Deposit 15 for P11,395.64
was issued in the name of Bonifacio Sia and the same was allegedly remitted to
DBP as advance rental deposit.
For reasons unclear, however, no written contract of lease was executed between
DBP and Cebu Bionic.
In the meantime, subsequent to the acquisition of the subject properties, DBP
offered the same for sale along with its other assets. Pursuant thereto, DBP
published a series of invitations to bid on such properties, which were scheduled
on January 19, 1989,16 February 23, 1989,17 April 13, 1989,18 and November 15,
1990.19 As no interested bidder came forward, DBP publicized an Invitation on
Negotiated Sale/Offer, the relevant terms and conditions of which stated:
INVITATION ON NEGOTIATED SALE/OFFER
The DEVELOPMENT BANK OF THE PHILIPPINES, Cebu Branch, will receive SEALED
NEGOTIATED OFFERS/PURCHASE PROPOSALS tendered at its Branch Office, DBP
Building, Osmea Boulevard, Cebu City for the sale of its acquired assets
mentioned hereinunder within the "15-Day-Acceptance-Period" starting from
NOVEMBER 19, 1990 up to 12:00 oclock noon of DECEMBER 3, 1990. Sealed
offers submitted shall be opened by the Committee on Negotiated Offers at
exactly 2:00 oclock in the afternoon of the last day of the acceptance period in
order to determine the highest and/or most advantageous offer.
Item Description/Location
No.
xxxx
II Commercial land, Lot No. 3681-C-3, having an area of 396 sq.
m., situated in Tabunok, Talisay, Cebu and covered by TCT No. T-
65199 (DBP), including the commercial building thereon.
xxxx
A pre-numbered Acknowledgment Receipt duly signed by at least two (2) of
the Committee members shall be issued to the offeror acknowledging
receipt of such offer.
Negotiated offers may be made in CASH or TERMS, the former requiring a
deposit of 10% and the latter 20% of the starting price, either in the form of
cash or cashiers/managers check to be enclosed in the sealed offer.
xxxx
After the lapse of the above-mentioned 15-day acceptance period, petitioners
did not submit any other offer/proposal to purchase the subject
properties.1avvphi1
Starting Price
On December 17, 1990, respondents To Chip, Yap and Balila presented their
letter-offer21 to purchase the subject properties on a cash basis for P1,838,100.00.
Said offer was accompanied by a downpayment of 10% of the offered purchase
price, amounting to P183,810.00. On even date, DBP acknowledged the receipt of
and accepted their offer. On December 28, 1990, respondents To Chip, Yap and
P1,838,100.00
Balila paid the balance of the purchase price and DBP issued a Deed of
Sale22 over the subject properties in their favor.
On January 11, 1991, the counsel of respondents To Chip, Yap and Balila sent a
letter23 addressed to the proprietor of Cebu Bionic, informing the latter of the
transfer of ownership of the subject properties. Cebu Bionic was ordered to
vacate the premises within thirty (30) days from receipt of the letter and directed
to pay the rentals from January 1, 1991 until the end of the said 30-day period.
The counsel of Cebu Bionic replied24 that his client received the above letter on
January 11, 1991. He stated that he has instructed Cebu Bionic to verify first the
ownership of the subject properties since it had the preferential right to purchase
the same. He likewise requested that he be furnished a copy of the deed of sale
executed by DBP in favor of respondents To Chip, Yap and Balila.

Interested negotiated offerors are requested to see Atty. Apolinar K. Panal, Jr.,
Acquired Asset in Charge (Tel. No. 9-63-25), in order to secure copies of the
Letter-Offer form and Negotiated Sale Rules and Procedures.
NOTE: If no offer is received during the above stated acceptance period, the
properties described above shall be sold to the first offeror who submits an
acceptable proposal on a "First-Come-First-Served" basis.
City of Cebu, Philippines, November 16, 1990.
(SGD.) TIMOTEO P. OLARTE
Branch Head20 (Emphases ours.)
In the morning of December 3, 1990, the last day for the acceptance of
negotiated offers, petitioners submitted through their representative, Judy
Garces, a letter-offer form, offering to purchase the subject properties
for P1,840,000.00. Attached to the letter-offer was a copy of the Negotiated Sale
Rules and Procedures issued by DBP and a managers check for the amount
of P184,000.00, representing 10% of the offered purchase price. This offer of
petitioners was not accepted by DBP, however, as the corresponding deposit
therefor was allegedly insufficient.
On February 15, 1991, respondent To Chip wrote a letter25 to the counsel of Cebu
Bionic, insisting that he and his co-respondents Yap and Balila urgently needed
the subject properties to pursue their business plans. He also reiterated their
demand for Cebu Bionic to vacate the premises.
Shortly thereafter, on February 27, 1991, the counsel of respondents To Chip, Yap
and Balila sent its final demand letter26 to Cebu Bionic, warning the latter to
vacate the subject properties within seven (7) days from receipt of the letter,
otherwise, a case for ejectment with damages will be filed against it. 27
Despite the foregoing notice, Cebu Bionic still paid28 to DBP, on March 22, 1991,
the amount of P5,000.00 as monthly rentals on the unit of the State Theatre
Building it was occupying for period of November 1990 to March 1991.
On April 10, 1991, petitioners filed against respondents DBP, To Chip, Yap and
Balila a complaint29 for specific performance, cancellation of deed of sale with
damages, injunction with a prayer for the issuance of a writ of preliminary
injunction.30 The complaint was docketed as Civil Case No. CEB-10104 in the RTC.
Petitioners alleged, inter alia, that Cebu Bionic was the lessee and occupant of a
commercial space in the State Theatre Building from October 1981 up to the time
of the filing of the complaint. During the latter part of 1990, DBP advertised for
sale the State Theatre Building and the commercial lot on which the same was
situated. In the prior invitation to bid, the bidding was scheduled on November
15, 1990; while in the next, under the 15-day acceptance period, the submission
of proposals was to be made from November 19, 1990 up to 12:00 noon of
December 3, 1990. Petitioners claimed that, at about 10:00 a.m. on December 3,
1990, they duly submitted to Atty. Apolinar Panal, Jr., Chief of the Acquired Assets
of DBP, the following documents, namely:
6.1 Letter-offer form, offering to purchase the property advertised,
for the price of P1,840,000, which was higher than the starting price
of P1,838,100.00 on cash basis. x x x;
6.2 Negotiated Sale Rules and Procedures, duly signed by plaintiff, x x x;
6.3 Managers check for the amount of P184,000 representing 10% of
the deposit dated December 3, 1990 and issued by Allied Banking Corp.
in favor of the Development Bank of the Philippines. x x x. 31 (Emphasis
ours.)
Petitioners asserted that the above documents were initially accepted but later
returned. DBP allegedly advised petitioners that "there was no urgent need for
the same x x x, considering that the property will necessarily be sold to [Cebu
Bionic] for the reasons that there was no other interested party and that [Cebu
Bionic] was a preferred party being the lessee and present occupant of the
property subject of the lease[.]"32 Petitioners then related that, without their
knowledge, DBP sold the subject properties to respondents To Chip, Yap and
Balila. The sale was claimed to be simulated and fictitious, as DBP still received
rentals from petitioners until March 1991. By acquiring the subject properties,
petitioners contended that DBP was deemed to have assumed the contract of
lease executed between them and Rudy Robles. As such, DBP was bound by the
provision of the lease contract, which stated that:
9. Should the Lessor decide to sell the property during the term of this lease
contract or immediately after the expiration of the lease, the Lessee shall have the
first option to buy and shall match offers from outside parties.33
Petitioners sought the rescission of the contract of sale between DBP and
respondents To Chip, Yap and Balila. Petitioners also prayed for the issuance of a
writ of preliminary injunction, restraining respondents To Chip, Yap and Balila
from registering the Deed of Sale in the latters favor and from undertaking the
ejectment of petitioners from the subject properties. Likewise, petitioners
entreated that DBP be ordered to execute a deed of sale covering the subject
properties in their name and to pay damages and attorneys fees.
In its answer,34 DBP denied the existence of a contract of lease between itself and
petitioners. DBP countered that the letter-offer of petitioners was actually not
accepted as their offer to purchase was on a term basis, which therefore required
a 20% deposit. The 10% deposit accompanying the petitioners letter-offer was
declared insufficient. DBP stated that the letter-offer form was not completely
filled out as the "Term" and "Mode of Payment" fields were left blank. DBP then
informed petitioner Lydia Sia of the inadequacy of her offer. After ascertaining
that there was no other offeror as of that time, Lydia Sia allegedly summoned
back her representative who did not leave a copy of the letter-offer and the
attached documents. DBP maintained that petitioners documents did not show
that the same were received and approved by any approving authority of the
bank. The letter-offer attached to the complaint, which indicated that the mode
of payment was on a cash basis, was allegedly not the document shown to DBP.
In addition, DBP argued that there was no assumption of the lease contract
between Rudy Robles and petitioners since it acquired the subject properties
through the involuntary mode of extrajudicial foreclosure and its request to
petitioners to sign a new lease contract was simply ignored. DBP, therefore,
insisted that petitioners occupancy of the unit in the State Theatre Building was
merely upon its acquiescence. The petitioners payment of rentals on March 22,
1991 was supposedly made in bad faith as they were made to a mere teller who
had no knowledge of the sale of the subject properties to respondents To Chip,
Yap and Balila. DBP, thus, prayed for the dismissal of the complaint and, by way
of counterclaim, asked that petitioners be ordered to pay damages and attorneys
fees.
Respondents To Chip, Yap and Balila no longer filed a separate answer, adopting
instead the answer of DBP.35
In an Order36 dated July 31, 1991, the RTC granted the prayer of petitioners for
the issuance of a writ of preliminary injunction.37
On April 25, 1997, the RTC rendered judgment in Civil Case No. CEB-10104,
finding meritorious the complaint of the petitioners. Explained the trial court:
It is a fact on record that [petitioners] complied with the requirements of deposit
and advance rental as conditions for constitution of lease between the parties.
[Petitioners] in complying with the requirements, issued a time deposit in the
amount of P11,395.64 and remitted faithfully its monthly rentals until April, 1991,
which monthly rental was no longer accepted by the DBP. Although there was
no formal written contract executed between [respondent] DBP and the
[petitioners], it is very clear that DBP opted to continue the old and
previous contract including the terms thereon by accepting the
requirements contained in paragraph 2 of its letter dated June 18, 1987. It is
also a fact on record that under the lease contract continued by the DBP on the
[petitioners], it is provided in paragraph 9 thereof that the lessee shall have the
first option to buy and shall match offers from outside parties. And yet,
[respondent] DBP never gave [petitioners] the first option to buy or to
match offers from outside parties, more specifically [respondents] To Chip,
Balila and Yap. It is also a fact on record that [respondent] DBP in its letter dated
June 18, 1987 to [petitioners] wrote in paragraph 3 thereof, "that in case there is
better offer or if a property will be subject of purchase offer, within the term, the
lessee is given the option of first refusal, otherwise, he has to vacate the premises
within thirty (30) days". Yet, [respondent] DBP never informed [petitioners]
that there was an interested party to buy the property, meaning,
[respondents To Chip, Yap and Balila], thus depriving [petitioners] of the
opportunity of first refusal promised to them in its letter dated June 18,
1987. x x x.38 (Emphases ours.)
As regards the offer of petitioners to purchase the subject properties from DBP,
the RTC gave more credence to the petitioners version of the facts, to wit:
It is also a fact on record that when [respondent] DBP offered the property for
negotiated sale under the 15-day acceptance period[, which] ended at noon of
December 3, 1991, [Cebu Bionic] submitted its offer, complete with [the required
documents.] x x x.
xxxx
These requirements, however, were unceremoniously returned by [respondent]
bank with the assurance that since there was no other bidder of the said
property, there was no urgency for the same and that [Cebu Bionic] also, in all
events, is entitled to first option being the present lessee.
The declaration of Atty. Panal to the effect that Cebu Bionic wanted to buy the
property on installment terms, such that the deposit of P184,000.00 was
insufficient being only 10% of the offer, could not be given much credence as it is
refuted by Exh. "H" which is the negotiated offer to purchase form under the 15-
day acceptance period accomplished by [petitioners] which shows clearly the
written word "Cash" after the printed words "Term" and "Mode of Payment",
Exhibit "J", the Managers check issued by Allied Banking Corporation dated
December 3, 1990 in the amount of P184,000.00 representing 10% of the offer
showing the mode of payment is for cash; Exhibit "K" which is the application for
Managers check in the amount of P184,000.00 dated December 3, 1990 showing
the beneficiary as DBP. If it is true that the offer of [petitioners] was for
installment payments, then in the ordinary course of human behavior, it
would not have wasted effort in securing a Managers check in the amount
of P184,000.00 which was insufficient for 20% deposit as required for
installment payments. More credible is the explanation [given by] witness
Judy Garces when she said that DBP through Atty. Panal returned the
documents submitted by her, saying that there was no urgency for the same
as there was no other bidder of [the said] property and that Cebu Bionic was
entitled to a first option to buy being the present lessee. In the letter also of
[respondent] bank dated June 18, 1987, it is important to note that aside from
requiring Cebu Bionic to comply with certain requirements of time deposit and
advance rental, as condition for constitution of lease between the parties and
which was complied by Cebu Bionic[,] said letter further states in paragraph 3
thereof that "in case there is [a] better offer or if the property will be subject of a
purchase offer, within the term, the lessee is given the option of first refusal,
otherwise, he has to vacate the premises within thirty days". In answer to the
Courts question, however, Atty. Panal admitted that he did not tell [petitioners]
that there was another party who was willing to purchase the property, in
violation of [petitioners] right of first refusal.39 (Emphasis ours.)
Likewise, the RTC found that respondents To Chip, Yap and Balila were aware of
the lease contract involving the subject properties before they purchased the
same from DBP. Thus:
[Respondent] Jose To Chip lamely pretends ignorance that [petitioners] are
lessees of the property, subject matter of this case. He states that he and his
partners, the other [respondents], were given assurances by Atty. Panal of the
DBP that [Lydia Sia] is not a lessee, although he knew that [petitioners] were
presently occupying the property and that it was possessed by [petitioners] even
before it was owned by the DBP. x x x.
xxxx
[Respondent] Roger Balila, in his testimony, likewise pretended ignorance that he
knew that [Lydia Sia] was a lessee of the property. x x x.
xxxx
Upon further questioning by the Court, he admitted that [Lydia Sia] was not
possessing the building freely; that she was a lessee of Rudy Robles, the former
owner, but cleverly insisted in disowning knowledge that [Lydia Sia] was a lessee,
denying knowledge that [Lydia Sia] was paying rentals to [respondent] bank. His
pretended ignorance x x x was a way of evading [Cebu Bionics] right of first
priority to buy the property under the contract of lease. x x x The Court is
convinced that [respondents To Chip, Yap and Balila] knew that [Cebu Bionic] was
the present lessee of the property before they bought the same from
[respondent] bank. Common observation, knowledge and experience dictates
that as a prudent businessman, it was but natural that he ask Lydia Sia what her
status was in occupying the property when he went to talk to her, that he ask her
if she was a lessee. But he said, all he asked her was whether she was interested
to buy the property. x x x.40
The trial court, therefore, concluded that:
From the foregoing facts on record, it is thus clear that [petitioner] Cebu Bionic is
the present lessee of the property, the lease contract having been continued by
[respondent] DBP when it received rental payments up to March of 1991 as well
as the advance rental for one year represented by the assigned time deposit
which is still in [respondent] banks possession. The provision, therefore, in the
lease contract, on the right of first option to buy and the right of first refusal
contained in [respondent] banks letter dated June 18, 1987, are still subsisting
and binding up to the present, not only on [respondent] bank but also on
[respondents To Chip, Yap and Balila]. x x x.
xxxx
WHEREFORE, THE FOREGOING PREMISES CONSIDERED, judgment is hereby
rendered:
(1) Rescinding the Deed of Sale dated December 28, 1990 between
[respondent] Development Bank of the Philippines and [respondents]
Roger Balila, Jose To Chip and Patricio Yap;
(2) Ordering the [respondent] Development Bank of the Philippines to
execute a Deed of Sale over the property, subject matter of this case
upon payment by [petitioners] of the whole consideration involved and
to complete all acts or documents necessary to have the title over said
property transferred to the name of [petitioners];
(3) Costs against [respondents].41
DBP forthwith filed a Notice of Appeal.42 Respondents To Chip, Yap and Balila
filed a Motion for Reconsideration43 of the above decision, but the RTC denied
the same in an Order44 dated July 4, 1997. Said respondents then filed their
Notice of Appeal.45
On February 14, 2001, the Court of Appeals promulgated its
Decision,46 pronouncing that:
We find nothing erroneous with the judgment rendered by the trial court.
Perforce, We sustain it and dismiss the [respondents] submission.
The RTC determined, upon evidence on record after a careful evaluation of the
witnesses and their testimonies during the trial that indeed [petitioners] right of
first option was violated and thus, rescission of the sale made by DBP to
[respondents To Chip, Yap and Balila] are in order.
xxxx
Apparently, DBP accepted [the documents submitted by petitioners] and
thereafter, through Atty. Panal (of DBP), returned all of it to the [petitioners] "with
the assurance that since there was no other bidder of the said property, there was
no urgency for the same and that [Cebu Bionic] also, in all events, is entitled to
first option being the present lessee.
[DBP] maintains that the return of the documents [submitted by petitioners] was
in order since the [petitioners] offered to buy the property in question on
installment basis requiring a higher 20% deposit. This, however, was correctly
rejected by the trial court[.] x x x
The binding effect of the lease agreement upon the [respondents To Chip, Yap
and Balila] must be sustained since from existing jurisprudence cited by the lower
court, it was determined during trial that:
"... [respondents To Chip, Yap and Balila] knew that [Cebu Bionic] was the
present lessee of the property before they bought the same from [respondent]
bank. Common observation, knowledge and experience dictates that as a
prudent businessman, it was but natural that he ask Lydia Sia what her
status was in occupying the property when he went to talk to her, that he
ask her if she was a lessee. But he said, all he asked her was whether she was
interested to buy the property. x x x.
Moreover, We find that the submissions presented by the [respondents] in their
respective briefs argue against questions of facts as found and determined by the
lower court. The respondents contentions consist of crude attempts to question
the assessment and evaluation of testimonies and other evidence gathered by
the trial court.
It must be remembered that findings of fact as determined by the trial court are
entitled to great weight and respect from appellate courts and should not be
disturbed on appeal unless for [strong] and cogent reasons. These findings
generally, so long as supported by evidence on record, are not to be disturbed
unless there are some facts or evidence which the trial court has misappreciated
or overlooked, and which if considered would have altered the results of the
entire case. Sad to say for the [respondents], We see no reason to depart from
this well-settled legal principle.
WHEREFORE, in view of the foregoing, the judgment of the Regional Trial Court
of Cebu City, Branch 8, in Civil Case No. 10104 is hereby AFFIRMED in toto.47
On October 1, 2001, petitioners filed a Motion for Issuance of Entry of
Judgment.48 Petitioners stressed that, based on the records of the case,
respondents were served a copy of the Court of Appeals Decision dated February
14, 2001 sometime on March 7, 2001. However, petitioners discovered that
respondents have not filed any motion for reconsideration of the said decision
within the reglementary period therefor, nor was there any petition for certiorari
or appeal filed before the Supreme Court.
In response to the above motion, respondents To Chip, Yap and Balila filed on
October 8, 2001 a Motion to Admit Motion for Reconsideration.49 Atty. Francis M.
Zosa, the counsel for respondents To Chip, Yap and Balila, explained that he sent
copies of the motion for reconsideration to petitioners and DBP via personal
delivery. On the other hand, the copies of the motion to be filed with the Court of
Appeals were purportedly sent to Mr. Domingo Tan, a friend of Atty. Zosa in
Quezon City, who agreed to file the same personally with the appellate court in
Manila. When Atty. Zosa inquired if the motion for reconsideration was
accordingly filed, Mr. Tan allegedly answered in the affirmative. To his surprise,
Atty. Zosa received a copy of petitioners Motion for Issuance of Entry of
Judgment. Atty. Zosa, thus, attributed the failure of his clients to file a motion for
reconsideration on the mistake, excusable negligence and/or fraud committed by
Mr. Tan.
In the assailed Resolution dated February 5, 2002, the Court of Appeals granted
the motion of respondents To Chip, Yap and Balila and admitted the motion for
reconsideration attached therewith "in the higher interest of substantial justice." 50
On July 5, 2002, the Court of Appeals reversed its original Decision dated
February 14, 2001, reasoning thus:
After a judicious review and reevaluation of the evidence and facts on record, we
are convinced that DBP had terminated the Robles lease contract. From its letter
of June 18, 1987, DBP had expressly notified [petitioners] that "(I)f they wish to
continue on leasing the property x x x" "to come to the Bank for the execution of
a Contract of Lease, the salient conditions of which are as follows:
1. The lease will be on a month to month basis for a maximum
period of one (1) year;
2. Deposit equivalent to two (2) months rental and advance of one
(1) month rental, and the remaining amount for one year
(equivalent to 9 months rental) shall be secured by either surety
bond, cash bond or assigned time deposit;
3. That in case there is a better offer or if the property will be
subject of a purchase offer, within the term, the lessor is given an
option of first refusal, otherwise he has to vacate the premises
within thirty (30) days from date of notice.
We consider, temporarily, the current monthly rental based on the six-month
receipts, which we require you to submit, until such time when we will fix the
amount accordingly."
Evidently, except for the remittance of the monthly rentals up to March 1991, the
conditions imposed by DBP have never been complied with. [Petitioners] did not
go to the Bank to sign any new written contract of lease with DBP. [Petitioners]
also did not put up a surety bond nor cash bond nor assign a time deposit to
secure the payment of rental for nine (9) months, although the [petitioners]
opened a time deposit but did not assign it to DBP.
But even with the remittance and acceptance of the deposit made by [petitioners]
equivalent to two (2) months rental and advance of one (1) month rental it does
not necessarily follow that DBP opted to continue with the Robles lease. This is
because the Robles contract provides:
"That the term of the agreement shall start on November 1, 1981 and shall
terminate on the last day of every month thereafter, provided however, that
this contract shall be automatically renewed on a month to month basis if
no notice in writing is sent to the other party to determine to terminate this
agreement after fifteen (15) days from the receipt of said notice."
Here, a notice was sent to [petitioners] on June 18, 1987, informing them that if
they "wish to continue on leasing the property, we request you to come to the
Bank for the execution of a Contract of Lease x x x."
[Petitioners] failed to enter into the contract of lease required by DBP for it to
continue occupying the leased premises.
Because of [petitioners] failure to comply with the conditions embodied in the 18
June 1987 letter, it cannot be said that [petitioners] entered into a new contract
with DBP where they were given the first option to buy the leased property and
to match offers from outside parties.
xxxx
Be that as it may, DBP continued to accept the monthly rentals based on the old
Robles contract despite the fact that the [petitioners] failed to enter into a written
lease contract with it. Corollarily, the relations between the parties is now
governed by Article 1670 of the New Civil Code, thus:
"Art. 1670. If at the end of contract the lessee should continue enjoying the thing
leased for fifteen days with the acquiescence of the lessor, and unless a notice to
the contrary by either party has previously been given, it is understood that there
is an implied new lease, not for the period of the original contract, but for the
time established in Articles 1682 and 1687. The other terms of the original
contract shall be revived."
xxxx
x x x [T]he acceptance by DBP of the monthly rentals does not mean that the
terms of the Robles contract were revived. In the case of Dizon vs. Court of
Appeals, the Supreme Court declared that:
"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 are only those terms which
are germane to the lessees right [of] continued enjoyment of the property leased
an implied new lease does not ipso facto carry with it any implied revival of any
option to purchase the leased premises."
In view of the foregoing, it is clear that [petitioners] had no right to file a case
for rescission of the deed of sale executed by DBP in favor of [respondents To
Chip, Yap and Balila] because said deed of sale did not violate their alleged first
option to buy or match offers from outside parties which is legally non-existent
and which was not impliedly renewed under Article 1670 of the Civil Code.
WHEREFORE, premises considered, the 14 February 2001 Decision is
hereby RECONSIDERED and another one is issued REVERSING the 25 April 1997
Decision of the Regional Trial Court, Branch 8, Cebu City in Civil Case No. CEB-
10104 and the complaint of [petitioners] is DISMISSED for lack of merit.51
Without seeking a reconsideration of the above decision, petitioners filed the
instant petition. In their Comment, respondents opposed the petition on both
procedural and substantive grounds.
In petitioners Memorandum, they summarized the issues to be resolved in the
present case as follows:
A) PRELIMINARY ISSUES:
I WHEN IT FAILED TO DECLARE THAT RESPONDENT DBP HAD
WHETHER OR NOT THE VERIFICATION (AND CERTIFICATION OF
NON-FORUM SHOPPING) IN THE INSTANT PETITION WAS
PROPER AND VALID DESPITE ITS BEING SIGNED BY ONLY ONE
OF THE TWO PETITIONERS.
II
WHETHER OR NOT ONLY QUESTIONS OF LAW AND NOT OF
FACT CAN BE RAISED IN THE INSTANT PETITION BEFORE THIS
HON. SUPREME COURT.
B) MAIN AND PRINCIPAL ISSUES IN THE INSTANT PETITION:
I
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN
ADMITTING RESPONDENTS MOTION FOR RECONSIDERATION
DESPITE ITS BEING FILED OUT OF TIME
II
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN
DECLARING THAT PETITIONERS DID NOT ENTER INTO
CONTRACT WITH RESPONDENT DBP CONTINUING THE TERMS
OF THE ROBLES CONTRACT
III
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED
WHEN IT DECLARED THAT THE CONTINUATION BY
RESPONDENT DBP OF THE LEASE CONTRACT DID NOT
CONTAIN THE RIGHT OF FIRST REFUSAL
IV
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED
WHEN IT DECLARED THAT THE LEASE CONTRACT IS GOVERNED
BY ART. 1670 OF THE NEW CIVIL CODE
V
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED
WHEN IT FAILED TO RECOGNIZE PETITIONERS RIGHT OF FIRST
REFUSAL TO WHICH RESPONDENTS WERE BOUND
VI
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED
VIOLATED PETITIONERS RIGHTS
VII
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN
REVERSING ITS OWN JUDGMENT AND DISMISSING
PETITIONERS CLAIM FOR RESCISSION52
We shall first resolve the preliminary issues.
Respondents To Chip, Yap and Balila argue that the instant petition should be
dismissed outright as the verification and certification of non-forum shopping
was executed only by petitioner Lydia Sia in her personal capacity, without the
participation of Cebu Bionic.
The Court is not persuaded.
Except for the powers which are expressly conferred on it by the Corporation
Code and those that are implied by or are incidental to its existence, a
corporation has no powers. It exercises its powers through its board of directors
and/or its duly authorized officers and agents. Thus, its power to sue and be sued
in any court is lodged with the board of directors that exercises its corporate
powers.53 Physical acts, like the signing of documents, can be performed only by
natural persons duly authorized for the purpose by corporate by-laws or by a
specific act of the board of directors.54
In this case, respondents To Chip, Yap and Balila obviously overlooked the
Secretarys Certificate55 attached to the instant petition, which was executed by
the Corporate Secretary of Cebu Bionic. Unequivocally stated therein was the fact
that the Board of Directors of Cebu Bionic held a special meeting on July 26, 2002
and they thereby approved a Resolution authorizing Lydia Sia to elevate the
present case to this Court in behalf of Cebu Bionic, to wit:
Whereas, the board appointed LYDIA I. SIA to act and in behalf of the corporation
to file the CERTIORARI with the Supreme Court in relations to the decision of the
Court of Appeals dated July 5, 2002 which reversed its own judgment earlier
promulgated on February 14, 2001 entitled CEBU BIONIC BUILDERS SUPPLY, INC.
and LYDIA SIA, (Petitioners- Appellants) versus THE DEVELOPMENT BANK OF
THE PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA
(Respondents- Appelles), docketed CA-G.R. NO. 57216.
Whereas, on mass unanimously motion of all members of directors present
hereby approved the appointment of LYDIA I. SIA to act and sign all papers in
connection of CA-G.R. NO. 57216.
Resolved and it is hereby resolve to appoint and authorized LYDIA I. SIA to sign
and file with the SUPREME COURT in connection to decision of the Court of
Appeals as above mention.56
Respondents To Chip, Yap and Balila next argue that the instant petition raises
questions of fact, which are not allowed in a petition for review on certiorari.
They, therefore, submit that the factual findings of the Court of Appeals are
binding on this Court.
Section 1, Rule 45 of the Rules of Court categorically states that the petition filed
thereunder shall raise only questions of law, which must be distinctly set forth. A
question of law arises when there is doubt as to what the law is on a certain state
of facts, while there is a question of fact when the doubt arises as to the truth or
falsity of the alleged facts. For a question to be one of law, the same must not
involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what the
law provides on the given set of circumstances. Once it is clear that the issue
invites a review of the evidence presented, the question posed is one of fact. 57
The above rule, however, admits of certain exceptions,58 one of which is when the
findings of the Court of Appeals are contrary to those of the trial court. As will be
discussed further, this exception is attendant in the case at bar.
We now determine the principal issues put forward by petitioners.
First off, petitioners fault the Court of Appeals for admitting the Motion for
Reconsideration of its Decision dated February 14, 2001, which was filed by
respondents To Chip, Yap and Balila more than six months after receipt of the
said decision. The motion was eventually granted and the Court of Appeals
issued its assailed Amended Decision, ruling in favor of respondents.
Indeed, the appellate courts Decision dated February 14, 2001 would have
ordinarily attained finality for failure of respondents to seasonably file their
Motion for Reconsideration thereon. However, we agree with the Court of
Appeals that the higher interest of substantial justice will be better served if
respondents procedural lapse will be excused.
Verily, we had occasion to apply this liberality in the application of procedural
rules in Barnes v. Padilla59 where we aptly declared that
The failure of the petitioner to file his motion for reconsideration within the
period fixed by law renders the decision final and executory. Such failure carries
with it the result that no court can exercise appellate jurisdiction to review the
case. Phrased elsewise, a final and executory judgment can no longer be attacked
by any of the parties or be modified, directly or indirectly, even by the highest
court of the land.
However, this Court has relaxed this rule in order to serve substantial justice
considering (a) matters of life, liberty, honor or property, (b) the existence of
special or compelling circumstances, (c) the merits of the case, (d) a cause not
entirely attributable to the fault or negligence of the party favored by the
suspension of the rules, (e) a lack of any showing that the review sought is merely
frivolous and dilatory, and (f) the other party will not be unjustly prejudiced
thereby.60
In this case, what are involved are the property rights of the parties given that,
ultimately, the fundamental issue to be determined is who among the petitioners
and respondents To Chip, Yap and Balila has the better right to purchase the
subject properties. More importantly, the merits of the case sufficiently called for
the suspension of the rules in order to settle conclusively the rights and
obligations of the parties herein.
In essence, the questions that must be resolved are: 1) whether or not there was a
contract of lease between petitioners and DBP; 2) if in the affirmative, whether or
not this contract contained a right of first refusal in favor of petitioners; and 3)
whether or not respondents To Chip, Yap and Balila are likewise bound by such
right of first refusal.
Petitioners contend that there was a contract of lease between them and DBP,
considering that they had been allowed to occupy the premises of the subject
property from 1987 up to 1991 and DBP received their rental payments
corresponding to the said period. Petitioners claim that DBP were aware of their
lease on the subject property when the latter foreclosed the same and the
acquisition of the subject properties through foreclosure did not terminate the
lease. Petitioners subscribe to the ruling of the RTC that even if there was no
written contract of lease, DBP chose to continue the existing contract of lease
between petitioners and Rudy Robles by accepting the requirements set down by
DBP on the letter dated June 18, 1987. Petitioners likewise posit that the contract
of lease between them and Rudy Robles never expired, inasmuch as the contract
did not have a definite term and none of the parties thereto terminated the same.
In view of the continuation of the lease contract between petitioners and Rudy
Robles, petitioners submit that Article 1670 of the Civil Code on implied lease is
not applicable on the instant case.
We are not persuaded.
In Uy v. Land Bank of the Philippines,61 the Court held that "[i]n respect of the
lease on the foreclosed property, the buyer at the foreclosure sale merely
succeeds to the rights and obligations of the pledgor-mortgagor subject to the
provisions of Article 1676 of the Civil Code on its possible termination. This article
provides that [t]he purchaser of a piece of land which is under a lease that is not
recorded in the Registry of Property may terminate the lease, save when there is
a stipulation to the contrary in the contract of sale, or when the purchaser knows
of the existence of the lease. In short, the buyer at the foreclosure sale, as a rule,
may terminate an unregistered lease except when it knows of the existence of the
lease."
In the instant case, the lease contract between petitioners and Rudy Robles was
not registered.62 During trial, DBP denied having any knowledge of the said lease
contract.63 It asserted that the lease was merely presumed in view of the existence
of tenants in the subject property.64 Nevertheless, DBP recognized and
acknowledged this lease contract in its letter dated June 18, 1987, which was
addressed to Bonifacio Sia, then President of Cebu Bionic. DBP even required Sia
to pay the monthly rental for the month of June 1987, thereby exercising the
right of the previous lessor, Rudy Robles, to collect the rental payments from the
lessee. In the same letter, DBP extended an offer to Cebu Bionic to continue the
lease on the subject property, outlining the provisions of the proposed contract
and specifically instructing the latter to come to the bank for the execution of the
same. DBP likewise gave Cebu Bionic a 30-day period within which to act on the
said contract execution. Should Cebu Bionic fail to do so, it would be deemed
uninterested in continuing with the lease. In that eventuality, the letter states that
Cebu Bionic should vacate the premises within the said period.
Instead of acceding to the terms of the aforementioned letter, the counsel of
Cebu Bionic sent a counter-offer to DBP dated July 7, 1987, suggesting a different
mode of payment for the rentals and requesting for a 60-day period within which
time the parties will execute a new contract of lease.
The parties, however, failed to execute a written contract of lease. Petitioners put
the blame on DBP, asserting that no contract was signed because DBP did not
prepare it for them. DBP, on the other hand, counters that it was petitioners who
did not positively act on the conditions for the execution of the lease contract. In
view of the counter-offer of petitioners, DBP and respondents To Chip, Yap and
Balila argue that there was no meeting of minds between DBP and petitioners,
which would have given rise to a new contract of lease.
The Court rules that, indeed, no new contract of lease was ever perfected
between petitioners and DBP.
In Metropolitan Manila Development Authority v. JANCOM Environmental
Corporation,65 we emphasized that:
Under Article 1305 of the Civil Code, "[a] contract is a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give
something or to render some service." A contract undergoes three distinct stages
preparation or negotiation, its perfection, and finally, its consummation.
Negotiation begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of the parties.
The perfection or birth of the contract takes place when the parties agree upon
the essential elements of the contract. The last stage is the consummation of the
contract wherein the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof (Bugatti vs. CA, 343 SCRA 335
[2000]). Article 1315 of the Civil Code, provides that a contract is perfected by
mere consent. Consent, on the other hand, is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute
the contract (See Article 1319, Civil Code). x x x.66
In the case at bar, there was no concurrence of offer and acceptance vis--vis the
terms of the proposed lease agreement. In fact, after the reply of petitioners
counsel dated July 7, 1987, there was no indication that the parties undertook
any other action to pursue the execution of the intended lease contract.
Petitioners even admitted that they merely waited for DBP to present the contract
to them, despite being instructed to come to the bank for the execution of the
same.67
Contrary to the ruling of the RTC, the Court is also not convinced that DBP opted
to continue the existing lease contract between petitioners and Rudy Robles.
The findings of the RTC that DBP supposedly accepted the requirements the
latter set forth in its letter dated June 18, 1987 is not well taken. To recapitulate,
the third paragraph of the letter reads:
If you wish to continue on leasing the property, we request you to come to the
Bank for the execution of a Contract of Lease, the salient conditions of which are
as follows:
1. The lease will be on month to month basis, for a maximum period of
one (1) year;
2. Deposit equivalent to two (2) months rental and advance of one (1)
month rental, and the remaining amount for one year period (equivalent
to 9 months rental) shall be secured by either surety bond, cash bond or
assigned time deposit;
3. That in case there is a better offer or if the property will be subject of a
purchase offer, within the term, the lessor is given an option of first
refusal, otherwise he has to vacate the premises within thirty (30) days
from date of notice.68
The so-called "requirements" enumerated in the above paragraph are not really
requirements to be complied with by the petitioners for the execution of the
proposed lease contract, as apparently considered by the RTC and the
petitioners. A close reading of the letter reveals that the items enumerated
therein were in fact the salient terms and conditions of the proposed contract of
lease, which the DBP and the petitioners were to execute if the latter were so
willing. Also, the Certificate of Time Deposit in the amount of P11,395.64, which
was allegedly paid to DBP as advance rental deposit pursuant to the said
requirements, was not even clearly established as such since it was neither
secured by a security bond or a cash bond, nor was it assigned to DBP.
The contention that the lease contract between petitioners and Rudy Robles did
not expire, given that it did not have a definite term and the parties thereto failed
to terminate the same, deserves scant consideration. To recall, the second
paragraph of the terms and conditions of the contract of lease between
petitioners and Rudy Robles reads:
2. That the term of this agreement shall start on November 1, 1981 and shall
terminate on the last day of every month thereafter; provided however that this
contract shall be automatically renewed on a month to month basis if no notice,
in writing, is sent to the other party to terminate this agreement after fifteen (15)
days from receipt of said notice.69 (Emphases ours.)
Crystal clear from the above provision is that the lease is on a month-to-month
basis. Relevantly, the well-entrenched principle is that a lease from month-to-
month is with a definite period and expires at the end of each month upon the
demand to vacate by the lessor.70 As held by the Court of Appeals in the assailed
Amended Decision, the above-mentioned lease contract was duly terminated by
DBP by virtue of its letter dated June 18, 1987. We reiterate that the letter
explicitly directed the petitioners to come to the office of the DBP if they wished
to enter into a new lease agreement with the said bank. Otherwise, if no contract
of lease was executed within 30 days from the date of the letter, petitioners were
to be considered uninterested in entering into a new contract and were thereby
ordered to vacate the property. As no new contract was in fact executed between
petitioners and DBP within the 30-day period, the directive to vacate, thus, took
effect. DBPs letter dated June 18, 1987, therefore, constituted the written notice
that was required to terminate the lease agreement between petitioners and
Rudy Robles. From then on, the petitioners continued possession of the subject
property could be deemed to be without the consent of DBP.
Thusly, petitioners assertion that Article 1670 of the Civil Code is not applicable
to the instant case is correct. The reason, however, is not that the existing
contract was continued by DBP, but because the lease was terminated by DBP,
which termination was accompanied by a demand to petitioners to vacate the
premises of the subject property.
Article 1670 states that "[i]f at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the lessor, and
unless a notice to the contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the period of the original
contract, but for the time established in Articles 1682 and 1687. The other terms
of the original contract shall be revived." In view of the order to vacate embodied
in the letter of DBP dated June 18, 1987 in the event that no new lease contract is
entered into, the petitioners continued possession of the subject properties was
without the acquiescence of DBP, thereby negating the constitution of an implied
lease.
Contrary to the ruling of the RTC, DBPs acceptance of petitioners rental
payments of P5,000.00 for the period of November 1990 to March 1991 did not
likewise give rise to an implied lease between petitioners and DBP. In Tagbilaran
Integrated Settlers Association (TISA) Incorporated v. Court of Appeals, 71 we held
that "the subsequent acceptance by the lessor of rental payments does not,
absent any circumstance that may dictate a contrary conclusion, legitimize the
unlawful character of their possession." In the present case, the petitioners rental
payments to DBP were made in lump sum on March 22, 1991. Significantly, said
payments were remitted only after petitioners were notified of the sale of the
subject properties to respondents To Chip, Yap and Balila and after the
petitioners were given a final demand to vacate the properties. These facts
substantially weaken, if not controvert, the finding of the RTC and the argument
of petitioners that the latter were faithfully remitting their rental payments to DBP
until the year 1991.
Thus, having determined that the petitioners and DBP neither executed a new
lease agreement, nor entered into an implied lease contract, it follows that
petitioners claim of entitlement to a right of first refusal has no leg to stand on.
Furthermore, even if we were to grant, for the sake of argument, that an implied
lease was constituted between petitioners and the DBP, the right of first refusal
that was contained in the prior lease contract with Rudy Robles was not renewed
therewith. This is in accordance with the ruling in Dizon v. Magsaysay,72 which
involved the issue of whether a provision regarding a preferential right to
purchase is revived in an implied lease under Article 1670, to wit:
"[T]he other terms of the original contract" which are revived in the implied new
lease under Article 1670 are only those terms which are germane to the lessees
right of continued enjoyment of the property leased. 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. 73
DBP cannot, therefore, be accused of violating the rights of petitioners when it
offered the subject properties for sale, and eventually sold the same to
respondents To Chip, Yap and Balila, without first notifying petitioners. Neither
were the said respondents bound by any right of first refusal in favor of
petitioners. Consequently, the sale of the subject properties to respondents was
valid. Petitioners claim for rescission was properly dismissed.
WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of
Court is DENIED. The Resolution dated February 5, 2002 and the Amended
Decision dated July 5, 2002 of the Court of Appeals in CA-G.R. CV No. 57216 are
hereby AFFIRMED. No costs.
SO ORDERED.
G.R. No. 172292 July 23, 2010
ALIDA MORES Petitioner,
vs.
SHIRLEY M. YU-GO, MA. VICTORIA M. YU-LIM, and MA. ESTRELLA M.
YU, Respondents.
DECISION
CARPIO, J.:
G.R. No. 172292 is a petition for review assailing the Decision promulgated on
1 2
26 August 2005 by the Court of Appeals (appellate court) as well as the
Resolution3 promulgated on 14 March 2006 in CA-G.R. CV No. 76076. The
appellate court partially granted the petition filed by Shirley M. Yu-Go, Ma.
Victoria M. Yu-Lim, and Ma. Estrella M. Yu (Yu siblings) and reversed the decision
of the Regional Trial Court of Naga City, Branch 27 (trial court), dated 28 June
2002 in Civil Case No. 99-4216. The appellate court ordered spouses Antonio and
Alida Mores (spouses Mores) to pay the Yu siblings moral damages in the
amount of P100,000.
The Facts
Antonio Mores passed away during the pre-trial stage. Hence, Alida Mores
remained as the only defendant, per the trial courts order dated 3 May 2000. 4
The appellate court narrated the facts as follows:
On January 21, 1998, plaintiffs-appellants Shirley M. Yu-Go, Ma. Victoria M. Yu-
Lim and Ma. Estrella M. Yu ("appellants") filed a Complaint for Injunction and
Damages with Prayer for Issuance of a Temporary Restraining Order and
Preliminary Injunction before the Regional Trial Court in Naga City against
defendants-appellees, spouses Antonio and Alida Mores ("appellees"). Appellants
alleged that they co-owned a parcel of land located in Sto. Tomas, Magarao,
Camarines Sur on which a building of strong materials ("subject property") was
built. In March 1983, appellees pleaded to appellants that they be allowed to stay
in the subject property in the meantime that they did not own a house yet. Since
appellee Antonio Mores used to be an errand boy of appellants family, they
readily agreed without asking for any rental but subject only to the condition that
the said stay would last until anyone of appellants would need the subject
property. Forthwith, appellees and their children occupied the same as agreed
upon.
In November 1997, appellants made known to appellees that they were already in
need of the subject property. They explained that appellant Shirley Yu-Go needed
the same and, besides, appellees already have their own house in Villa Grande
Homes, Naga City. Yet, appellees begged that they be given a 6-month extension
to stay thereat or until May 1998. However, even after May 1998, appellees failed
to make good their promise and even further asked that they be allowed to stay
therein until October 1998, which was again extended until the end of the same
year. Thus, sometime in the first week of January 1999, appellants gave their final
demand for appellees to vacate the subject property. However, instead of
heeding such demand, appellees hired some laborers and started demolishing
the improvements on the subject property on January 20, 1999.
Appellants protest fell on deaf ears because appellees continued their demolition
and even took away and appropriated for themselves the materials derived from
such unlawful demolition. Consequently, appellants instituted the said action for
injunction where they also prayed for the reimbursement of the value of the
residential building illegally demolished as well as for the payment of moral
damages, attorneys fees, litigation expenses and costs of suit.
On February 5, 1999, appellees filed their Answer where they denied the material
averments of the complaint. They claimed that appellee Antonio Mores, who was
appellants uncle, used to be the assistant manager and cashier of appellants
father at their Caltex Service Station until the laters death sometime in 1980.
Appellants Caltex Filling Station had stopped operation and was just rented out
to Herce Trucking Service. Upon the expiration of such lease contract, appellees
were allowed to occupy the subject property as their dwelling places. They were
the ones who caused its renovation consisting of a 3-bedroom annex, a covered
veranda and a concrete hollow block fence, at their own expense, and with
appellants consent, which renovation was made without altering the form and
substance of the subject property. They denied that appellants made a demand
for them to vacate the subject property, insisting that it was merely a sort of
reminder that sooner or later appellees should yield possession thereof since,
after all, they had already bought a second-hand house which was undergoing
repair. Appellees argued that what they removed was merely the improvements
made on the subject property, which removal had not caused any substantial
damage thereto as, in fact, it remained intact. By way of counterclaims, they
demanded payment of actual damages, attorneys fees and litigation expenses. 5
The Trial Courts Ruling
On 28 June 2002, the trial court promulgated its Decision in favor of the spouses
Mores. The trial court ratiocinated and ruled thus:
Defendants, who are possessors in good faith, were able to prove by
preponderance of evidence that they removed only the improvements they
introduced without destroying the principal building, after the plaintiffs refused
to pay them the reasonable value of the improvements. x x x
But defendants failed to prove the allegations in their counterclaims that plaintiffs
acted in bad faith and/or through gross and reckless negligence in filing this
complaint, and the damages defendants allegedly suffered. Failing in this,
plaintiffs must also be presumed to have acted in good faith when they filed this
complaint with the honest belief that their rights were violated when defendants
removed the useful improvements from the principal building and land of
plaintiffs. Applying the same principle, the equipoise rule, defendants
counterclaims must necessarily fail.
Both parties having acted in good faith, the court will not disturb the present
status, and will leave the parties where it found them. Wounds should not be
scratched in order to hasten the healing process, and neither should this Court
scratch herein parties rift that torn [sic] them apart from being close relatives
before this controversy started. Parties owe to their siblings and to their posterity
to reconcile. Anyway, this case was started because parties were very close
relatives.
The courts are not only courts of justice but also courts of equity.
WHEREFORE, the complaint and the counterclaims are hereby dismissed. No
pronouncement as to cost.
SO ORDERED.6
The trial court gave due course to the Yu siblings Notice of Appeal in an Order
dated 22 July 2002.
The Appellate Courts Ruling
The appellate court partially granted the Yu siblings appeal. The appellate court
disagreed with the trial courts conclusion that the spouses Mores were builders
in good faith and have the right of accession under Articles 546 and 547 of the
Civil Code. Instead, the appellate court believed that the relationship between the
Yu siblings and the spouses Mores is one between a lessor and a lessee, making
Article 1678 of the Civil Code applicable to the present case. The options given by
Article 1678, the right of appropriating the useful improvements after
reimbursing 50% of its value or the right of removal of the useful improvements,
are given by law to the lessor - the Yu siblings. The spouses Mores, however,
failed to give the Yu siblings the opportunity to choose from these two options.
The appellate court thus ordered the spouses Mores to pay the Yu siblings moral
damages worth P100,000.
The appellate court resolved to deny Alida Mores Motion for Reconsideration for
want of merit.7
The Issues
In her petition, Alida Mores stated that the decision of the appellate court
awarding the Yu siblings moral damages in the amount of P100,000 is rendered
with grave abuse of discretion and is not in accord with the decisions of this
Court.8
The Courts Ruling
The petition has merit.
Alida Mores argues that in case of breach of contract between a lessor and a
lessee, moral damages are not awarded to the lessor if the lessee is not shown to
have acted in bad faith. She proves her and her husbands alleged good faith by
quoting the appellate courts decision which stated that:
[The Spouses Mores] good faith is underscored by the fact that no one from
appellants had objected or prevented appellees from effecting said
improvements which, obviously, were undertaken in quite a span of time. Even if
we believe appellant Victoria Yu-Lims testimony that they would only learn of the
introduction of such improvements after each of such improvements had already
been built, [the Yu siblings] never made known their objections thereto nor did
they pose a warning against future introduction of any improvement. After all,
the said improvements were not introduced simultaneously.9
The good faith referred to by Alida Mores was about the building of the
improvements on the leased subject property. However, tenants like the spouses
Mores cannot be said to be builders in good faith as they have no pretension to
be owners of the property.10 Indeed, full reimbursement of useful improvements
and retention of the premises until reimbursement is made applies only to a
possessor in good faith, i.e., one who builds on land with the belief that he is the
owner thereof. It does not apply where ones only interest is that of a lessee
under a rental contract; otherwise, it would always be in the power of the tenant
to "improve" his landlord out of his property.11
The appellate court is correct in ruling that Article 1678 of the Civil Code should
apply in the present case. Article 1678 reads:
If the lessee makes, in good faith, useful improvements which are suitable to the
use for which the lease is intended, without altering the form or substance of the
property leased, the lessor upon the termination of the lease shall pay the lessee
one-half of the value of the improvements at that time. Should the lessor refuse
to reimburse said amount, the lessee may remove the improvements, even
though the principal thing may suffer damage thereby. He shall not, however,
cause any more impairment upon the property leased than is necessary.1avvphi1
With regard to the ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no damage
is caused to the principal thing, and the lessor does not choose to retain them by WHEREFORE, we GRANT the petition. We AFFIRM with MODIFICATION the
paying their value at the time the lease is extinguished. Decision of the Court of Appeals promulgated on 26 August 2005 as well as the
Resolution promulgated on 14 March 2006 in CA-G.R. CV No. 76076. Article 1678
It is incorrect, however, for the appellate court to state that the spouses Mores
of the Civil Code is applicable to the present case. The award of moral damages
did not give the Yu siblings the option to retain the improvements. The appellate
worth P100,000 to the Yu siblings is deleted.
court stated that "nothing in the records reveal that [the Yu siblings] were given
the chance to choose from the options of either paying one-half () of the value SO ORDERED.
of the improvements at the time they were made on the subject property, or to
demand the removal by [the spouses Mores] of such improvements at their
expense."12 The trial court even quoted from the transcript of Alida Mores direct
testimony on 10 October 2001 on the subject:
Q: Plaintiff Yu-Lim likewise testified that the plaintiffs demanded in 1998
that you vacate the premises because it will be needed by plaintiff
Shirley Yu-Co, what can you say to that?
A: It was in November 1998 that the plaintiff intimated that we will soon
vacate the place because by that time we had already bought a second-
hand house.
Q: What happened after that?
A: My husband good-naturedly asked for reimbursement for the
improvements we constructed at our expense.
Q: What happened to that demand?
A: The plaintiffs became mad at us and refused to pay.
Q: What happened after that, what did your husband do?
A: My husband removed the roofing, coco lumber, trusses, the electrical
installation and the improvements constructed, glass panel and window
panel.
Q: By the way, who spent for the introduction of these improvements?
A: My husband and I.13
There is thus no reason for the appellate courts award of moral damages to the
Yu siblings. We agree with the trial courts finding that the spouses Mores
"removed only the improvements they introduced without destroying the
principal building, after the [Yu siblings] refused to pay them the reasonable
value of the improvements."14When the spouses Mores demanded
reimbursement, the Yu siblings should have offered to pay the spouses Mores
one-half of the value of the improvements. Since the Yu siblings failed to make
such offer, the spouses Mores had the right to remove the improvements.
G.R. No. 77439 August 24, 1989
DONALD DEE petitioner,
vs.
COURT OF APPEALS and AMELITO MUTUC, respondents.
Tanjuatco, Oreta & Tanjuatco for petitioner.
Amelito R. Mutuc for and in his own behalf
REGALADO, J.:
Petitioner assails the resolution of respondent court, dated February 12,1987,
reinstating its decision promulgated on May 9, 1986 in AC-G.R. CV No. 04242
wherein it affirmed the decision of the that court holding that the services
rendered by private respondent was on a professional, and not on a gratis et
amore basis and ordering petitioner to pay private respondent the sum of
P50,000.00 as the balance of the latter's legal fee therefor.
The records show that sometime in January, 1981, petitioner and his father went
to the residence of private respondent, accompanied by the latter's cousin, to
seek his advice regarding the problem of the alleged indebtedness of petitioner's
brother, Dewey Dee, to Caesar's Palace, a well-known gambling casino at Las
Vegas, Nevada, U.S.A. Petitioner's father was apprehensive over the safety of his
son, Dewey, having heard of a link between the mafia and Caesar's Palace and
the possibility that his son may be harmed at the instance of the latter. 1
Private respondent assured petitioner and his father that he would inquire into
the matter, after which his services were reportedly contracted for P100,000. 00.
From his residence, private respondent called up Caesar's Palace and, thereafter,
several long distance telephone calls and two trips to Las Vegas by him elicited
the information that Dewey Dee's outstanding account was around
$1,000,000.00. Further investigations, however, revealed that said account had
actually been incurred by Ramon Sy, with Dewey Dee merely signing for the chits.
Private respondent communicated said information to petitioner's a father and
also assured him that Caesar's Palace was not in any way linked to the mafia. 2
In June, 1981, private respondent personally talked with the president of Caesar's
Palace at Las Vegas, Nevada. He advised the president that for the sake and in
the interest of the casino it would be better to make Ramon Sy answer for the
indebtedness. The president told him that if he could convince Ramon Sy to
acknowledge the obligation, Dewey Dee would be exculpated from liability for
the account. Upon private respondent's return to Manila, he conferred with
Ramon Sy and the latter was convinced to acknowledge the indebtedness. In
August, 1981, private respondent brought to Caesar's Palace the letter of Ramon
Sy owning the debt and asking for a discount. Thereafter, the account of Dewey
Dee was cleared and the casino never bothered him. 3
Having thus settled the account of petitioner's brother, private respondent sent
several demand letters to petitioner demanding the balance of P50,000.00 as
attorney's fees. Petitioner, however, ignored said letters. On October 4, 1982,
private respondent filed a complaint against petitioner in the Regional Trial Court
of Makati, Branch CXXXVI, for the collection of attorney's fees and refund of
transport fare and other expenses. 4
Private respondent claimed that petitioner formally engaged his services for a fee
of P100,000.00 and that the services he rendered were professional services
which a lawyer renders to a client. Petitioner, however, denied the existence of
any professional relationship of attorney and client between him and private
respondent. He admits that he and his father visited private respondent for
advice on the matter of Dewey Dee's gambling account. However, he insists that
such visit was merely an informal one and that private respondent had not been
specifically contracted to handle the problem. On the contrary, respondent Mutuc
had allegedly volunteered his services "as a friend of defendant's family" to see
what he could do about the situation. As for the P50,000.00 inceptively given to
private respondent, petitioner claims that it was not in the nature of attomey's
fees but merely "pocket money" solicited by the former for his trips to Las Vegas
and the said amount of P50,000.00 was already sufficient remuneration for his
strictly voluntary services.
After trial, the court a quo rendered judgment ordering herein petitioner to pay
private respondent the sum of P50,000.00 with interest thereon at the legal rate
from the filing of the complaint on October 4, 1982 and to pay the costs. All
other claims therein of private respondent and the counterclaim of petitioner
were dismissed. 5 On appeal, said judgment was affirmed by the then
Intermediate Appellate Court on May 9, 1986. 6
Petitioner, in due time, filed a motion for reconsideration contending that the
Appellate Court overlooked two important and decisive factors, to wit: (1) At the
time private respondent was ostensibly rendering services to petitioner and his
father, he was actually working "in the interest" and "to the advantage" of
Caesar's Palace of which he was an agent and a consultant, hence the interests of
the casino and private respondent were united in their objective to collect from
the debtor; and (2) Private respondent is not justified in claiming that he
rendered legal services to petitioner and his father in view of the conflicting
interests involved.
In its resolution of July 31, 1986, respondent court reconsidered its decision and
held that the sum of P50,000.00 already paid by petitioner to private respondent
was commensurate to the services he rendered, considering that at the time he
was acting as counsel for petitioner he was also acting as the collecting agent
and consultant of, and receiving compensation from, Caesar's Palace. 7 However,
upon a motion for reconsideration thereafter filed by private respondent, the
present respondent Court of Appeals issued another resolution, dated February
12, 1987, reinstating the aforesaid decision of May 9, 1986. 8
Petitioner is now before us seeking a writ of certiorari to overturn the latter
resolution.
It is necessary, however, to first clear the air of the questions arising from the
change of stand of the First Civil Cases Division of the former Intermediate
Appellate Court when, acting on the representations in petitioner's undated
motion for reconsideration supposedly filed on May 28,1986, it promulgated its
July 31, 1986 resolution reconsidering the decision it had rendered in AC-G.R. CV
No. 04242. Said resolution was, as earlier noted, set aside by the Twelfth Division
of the reorganized Court of Appeals which, at the same time, reinstated the
aforesaid decision.
Because of its clarificatory relevance to some issues belatedly raised by petitioner,
which issues should have been disregarded 9 but were nevertheless auspiciously
discussed therein, at the risk of seeming prolixity we quote hereunder the salient
portions of the assailed resolution which demonstrate that it was not conceived
in error.
The reason for then IAC's action is that it deemed the
P50,000.00 plaintiff-appellee had previously received from
defendant-appellant as adequate compensation for the services
rendered by am for defendant-appellant, considering that at the
time plaintiff-appellee was acting as counsel for defendant-
appellant, he was also acting as the collecting agent and
consultant of, and receiving compensation from Caesar's Palace
in Las Vegas, Nevada, the entity with whom defendant-appellant
was having a problem and for which he had engaged the
services of plaintiff-appellee. The crux of the matter, therefore, is
whether or not the evidence on record justifies this finding of
the IAC.
Plaintiff-appellee maintains that his professional services to
defendant-appellant were rendered between the months of July
and September of 1981, while his employment as collection
agent and consultant of Caesar's Palace covered the period
from December 1981 to October 1982. This positive testimony
of plaintiff-appellee, however, was disregarded by the IAC for
the following reasons:
1. In August l983, plaintiff-appellee testified that he was a
representative of Caesar's Palace in the Philippines 'about two
or three years ago.' From this the IAC concluded that the period
covers the time plaintiff-appellee rendered professional services
to defendant-appellant.
We do not think that IAC's conclusion is necessarily correct.
When plaintiff-appellee gave the period 'about two or three
years ago,' he was merely stating an approximation. Considering
that plaintiff-appellee was testifying in August 1983, and his
employment with Caesar's Palace began in December 1981, the
stated difference of two years is relatively correct. . . .
2. The plaintiff appellee had testified that he was working for the
sake,' 'in the interest,' and 'to the advantage' of Caesar's Palace.
x x x "We detect nothing from the above which would support
IAC's conclusion that plaintiff-appellee was then in the employ
of Caesar's Palace. What is gathered is that plaintiff-appellee
was simply fulfilling a condition which plaintiff-appellee had
proposed to, and was accepted by, Caesar's Palace, for the
release of Dewey Dee from his obligation to Caesar's Palace.
3. Caesar's Palace would not have listened to, and acted upon,
the advice of plaintiff-appellee if he were no longer its
consultant and alter ego.
Why not? We are witnesses to many successful negotiations
between contending parties whose representing lawyers were
not and were never in the employ of the opposite party. The art
of negotiation is precisely one of the essential tools of a good
practitioner, and mastery of the art takes into account the
circumstance that one may be negotiating, among others, with a
person who may not only be a complete stranger but
antagonistic as well. The fact that plaintiff-appellee was able to
secure a favorable concession from Caesar's Palace for
defendant-appellant does not justify the conclusion that it could
have been secured only because of plaintiff-appellee's
professional relationship with Caesar's Palace. It could have
been attributable more to plaintiff-appellee's stature as a former
ambassador of the Philippines to the United States, his
personality, and his negotiating technique.
Assuming, however, that plaintiff-appellee was employed by
Caesar's Palace during the time that he was rendering
professional services for defendant-appellant, this would not
 automatically mean the denial of additional attorney's fees to
plaintiff appellee. The main reason why the IAC denied plaintiff-
appellee additional compensation was because the latter was
allegedly receiving compensation from Caesar's Palace, and,
therefore, the amount of P50,000.00 plaintiff-appellee had
previously received from defendant-appellant is 'reasonable and
commensurate. This conclusion, however, can only be justified if
the fact and amount of remuneration had been established.
These were not proven at all. No proof was presented as to the
nature of plaintiff-appellee's remuneration, and the mode or
manner in which it was paid.. . . 10
Both the lower court and the appellate court concur in their findings that there
was a lawyer-client relationship between petitioner and private respondent
Mutuc. We find no reason to interfere with this factual finding. There may be
instances when there is doubt as to whether an attorney-client relationship has
been created. The issue may be raised in the trial court, but once the trial court
and the Court of Appeals have found that there was such a relationship the
Supreme Court cannot disturb such finding of fact, 11 absent cogent reasons
therefor.
The puerile claim is advanced that there was no attorney-client relationship
between petitioner and private respondent for lack of a written contract to that
effect. The absence of a written contract will not preclude the finding that there
was a professional relationship which merits attorney's fees for professional
services rendered. Documentary formalism is not an essential element in the
employment of an attorney; the contract may be express or implied. To establish
the relation, it is sufficient that the advice and assistance of an attorney is sought
and received in any matter pertinent to his profession. An acceptance of the
relation is implied on the part of the attorney from his acting on behalf of his
client in pursuance of a request from the latter. 12
There is no question that professional services were actually rendered by private
respondent to petitioner and his family. Through his efforts, the account of
petitioner's brother, Dewey Dee, with Caesar's Palace was assumed by Ramon Sy
and petitioner and his family were further freed from the apprehension that
Dewey might be harmed or even killed by the so-called mafia. For such services,
respondent Mutuc is indubitably entitled to receive a reasonable compensation
and this right cannot be concluded by petitioner's pretension that at the time
private respondent rendered such services to petitioner and his family, the former
was also the Philippine consultant of Caesar's Palace.
On the first aspect, the evidence of record shows that the services of respondent
Mutuc were engaged by the petitioner for the purposes hereinbefore discussed.
The previous partial payments totalling P50,000.00 made by petitioner to
respondent Mutuc and the tenor of the demand letters sent by said private
respondent to petitioner, the receipt thereof being acknowledged by petitioner,
ineluctably prove three facts, viz: that petitioner hired the services of private
respondent Mutuc; that there was a prior agreement as to the amount of
attorney's fees to be given to the latter; and there was still a balance due and
payable on said fees. The duplicate original copy of the initial receipt issued and
signed in this connection by private respondent reads:
RECEIVED from Mr. Donald Dee, for professional services
rendered, the sum of THIRTY THOUSAND PESOS (P30,000.00) as
partial payment, leaving a balance of SEVENTY THOUSAND
PESOS (P70,000.00), payable on demand.
Makati, Metro Manila, July 25,1981. 13
Thereafter, several demand letters for payment of his fees, dated August 6, 1981,
December 2, 1981, January 29, 1982, March 7, 1982, and September 7, 1982 were
sent by private respondent to petitioner, 14 all to no avail.
On the second objection, aside from the facts stated in the aforequoted
resolution of respondent Court of Appeals, it is also not completely accurate to
judge private respondent's position by petitioner's assumption that the interests
of Caesar's Palace were adverse to those of Dewey Dee. True, the casino was a
creditor but that fact was not contested or opposed by Dewey Dee, since the
latter, as verifications revealed, was not the debtor. Hence, private respondent's
representations in behalf of petitioner were not in resistance to the casino's claim
but were actually geared toward proving that fact by establishing the liability of
the true debtor, Ramon Sy, from whom payment was ultimately and correctly
exacted. 15
Even assuming that the imputed conflict of interests obtained, private
respondent's role therein was not ethically or legally indefensible. Generally, an
attorney is prohibited from representing parties with contending positions.
However, at a certain stage of the controversy before it reaches the court, a
lawyer may represent conflicting interests with the consent of the parties. 16 A
common representation may work to the advantage of said parties since a
mutual lawyer, with honest motivations and impartially cognizant of the parties'
disparate positions, may well be better situated to work out an acceptable
settlement of their differences, being free of partisan inclinations and acting with
the cooperation and confidence of said parties.
Here, even indulging petitioner in his theory that private respondent was during
the period in question an agent of Caesar's Palace, petitioner was not unaware
thereof, hence he actually consented to and cannot now decry the dual
representation that he postulates. This knowledge he admits, thus:
It is a fair question to ask why, of all the lawyers in the land, it
was the private respondent who was singled out by the
petitioner's father for consultation in regard to an apparent
problem, then pending in Caesar's Palace. The testimony of
Arthur Alejandrino, cousin to private respondent, and the
admission of the private respondent himself supply the answer.
Alejandrino testified that private respondent was the
representative of Caesar's Palace in the Philippines (p. 23, t.s.n.,
Nov. 29, 1983).lwph1.t Private respondent testified that he
was such representative tasked by the casino to collect the
gambling losses incurred by Filipinos in Las Vegas. (p. 5, t.s.n.,
Sept. 21, 1983). 17
A lawyer is entitled to have and receive the just and reasonable compensation for
services rendered at the special instance and request of his client and as long as
he is honestly and in good faith trying to serve and represent the interests of his
client, the latter is bound to pay his just fees. 18
WHEREFORE, the resolution of respondent Court of Appeals, dated February
12,1987, reinstating its original decision of May 9, 1986 is hereby AFFIRMED, with
costs against l petitioner.
SO ORDERED.
G.R. No. 2965 January 2, 1907
JOAQUIN MA. HERRER, plaintiff-appellee,
vs.
ARSENIO CRUZ HERRERA, defendant-appellant.
Ariston Estrada for appellant.
Chicote, Miranda & Sierra for appellee.
TRACEY, J.:
This action was brought to recover the price of two oil paintings, claimed to
have been executed by the plaintiff under the order of the defendant and
accepted by him. It is evident from the testimony that there was a
misunderstanding between the parties as to the charter of the order and as
to the final effect of the exhibition of the paintings as the property of the
plaintiff, and also of their delivery to him at his house. By virtue of the rule in
the De la Rama case1 we are not at liberty to enter into an examination of
these questions of fact upon which the trial court has made express findings,
and which are conclusive upon appeal.
The point of law is raised by the defendant that under article 1544 of the Civil
Code the contract was not perfect because the price of the work was not
fixed. Upon a like contention this court has already passed adversely in the
case of Perez vs. Pomar (2 Phil. Rep., 682), a holding which is sustained by the
decision of the supreme court of Spain of the 18th of October, 1899.
Accordingly there is no ground justifying the reversal of this judgment, which
is affirmed with the costs of both instances. After expiration of twenty days
let judgment be entered in accordance herewith and ten days thereafter the
record remanded to the court below for proper action. So ordered.
G.R. No. L-49020 February 28, 1944
MANUEL ERNESTO GONZALES, petitioner,
vs.
VICENTE MATEO, ET AL., respondents.
OZAETA, J.:
Respondents, doing business as an unregistered partnership under the name and
style "Samahang Sabungang Malaya," leased to the petitioner their cockpit
situated in Malolos, Bulacan, under a written contract entered into on January 5,
1937, for the period of six years ending December 31, 1942, at the agreed yearly
rental of P100, upon the following conditions:
a. Ang lahat ng kailangan na gagawin sa bahay-sabungan ay
ipagagawang lahat ni G. Ernesto Gonzales sa kanyang sariling gugol na
ang samahan ay walang sinasagot.
b. Kung makaraan na ang anim (6) na taong pagkakabuwis or
pagkaupa, ang lahat ng mejora na nailagay ni G. Gonzales ay maiiwan sa
samahan na di pagbabayaran nito.
c. Ang bahay-sabungan at and lupang kinatitirikan nito, ay ang
samahan ang magbabayad ng buwis, at ang bayad ng arrendamiento ng
lupa ang samahan din ang magbabayad.
Before using said cockpit the petitioner as lessee made some improvements
thereon. He placed the posts on slabs of stone, without cementing them and
without using joint-pins to brace them up in spite of respondent Isidro Bautista's
advertence thereto.
On September 12, 1937, a cockfight was held in said cockpit with a large
attendance. The building broke down and was thereafter never used by the
petitioner.
The respondent lessors demanded of the petitioner that he either reconstruct the
cockpit or pay them the sum of P3,000 as damages in addition to the unpaid
rentals. Petitioner refused to comply with such demand, alleging that under his
contract he was not obligated to make repairs, but only improvements, on the
building and that its collapse was due to hidden defects which the lessors had
concealed from him. Hence this suit was brought by the lessors against the
lessee, which was sustained by the Court of First Instance of Bulacan, by which
the lessee was ordered to reconstruct the cockpit or pay to the lessors its value in
the sum of P3,000 plus the rentals for the last five years amounting to P500 and
the costs. Upon appeal to the Court of Appeals the latter modified that judgment
by reducing the damages from P3,000 to P1,000. Not contended with that
reduction, and insisting on complete absolution from any liability, the defendant
lessee appealed to this Court by certiorari.
Upon the stipulations of the contract in relation to the facts found by the Court
of Appeals as above set forth, we find no reason to disturb the conclusions of
that court and reverse its judgment. It is evident that petitioner accepted the
cockpit in question from respondents in the condition in which it was found at
the time under the express agreement that all that was necessary to put it in use
had to be done by the petitioner at his own expense without any obligation on
the part of the respondents to reimburse him or pay for the improvements thus
made upon the expiration of the lease. While it is true that under the law
(paragraph 2 article 1554 of the Civil Code) it is the duty of the lessor to make on
the building leased all repairs necessary in order to keep it in serviceable
condition for the purpose for which it was intended, the parties were at liberty to
stipulate the contrary; and in the instant case it is obvious that the lessors were
relieved of that duty and the lessee assumed it in their stead, considering the very
moderate, if not nominal, rent he was to pay, with the obligation on the part of
the lessors to pay the real estate taxes, and the relatively big profits the lessee
was to realize from the operation of the cockpit, netting P30 to P40 a week and
P800 on days on pintakasi (special holidays for cockfights), according to the
Court of Appeals. We cannot accept the interpretation urged by the petitioner,
that he was not obligated to make repairs, but only improvements, on the
building. He was clearly obligated to do all that was necessary to put the building
in serviceable condition, at his own expense. Of course, any work done by the
lessee on the building for that purpose was necessarily an improvement thereof;
and that was the reason why in condition (b) above quoted it was stated that all
improvements shall be for the benefit of the lessors without any obligation on
their part to pay therefor upon the expiration of the lease.
The collapse of the building in question on the occasion of the heavily attended
cockfight of September 12, 1937, was not due to any hidden defect but to the
fact that thru petitioner's negligence in making the repairs he failed to place the
posts on firm, solid, and sound foundation in spite of one of the lessors'
advertence to him on the matter.
Under article 1563 of the Civil Code, "the lessee is liable for any deterioration or
loss suffered by the thing leased, unless he proves that it took place without his
fault." And under article 1101 of the same Code, any person guilty of negligence
in the fulfillment of his obligations, or who in any manner whatsoever shall fail to
comply with the terms thereof, shall be liable for any damage caused thereby.
The judgment appealed from, being in accordance with law, is hereby affirmed,
with costs.
G.R. No. L-54753 June 24, 1983
MARIETTA E. DAKUDAO, ANTONIETTA E. QUINTOS, ELSA E. ALMEDA, JOSE
R. EBRO, JR., and LUCIA E. PELAYO, petitioners,
vs.
HON. JUDGE FRANCISCO Z. CONSOLACION, FRANCISCO ANG SINGCO,
FEDERICO LAURECIO and CARMEN LAURECIO, respondents.
Jose R Ebro, Jr. for petitioners.
Delante & Associates for respondents.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari with pre mandatory injunction seeking to
reverse the orders of the respondent Court of First Instance of Davao dated June
10, 1980 and July 18, 1980. The petitioners have come to this Court on pure
questions of law.
There is no dispute over the basic facts of this case which are summarized by the
respondent court as follows:
Plaintiffs are co-owners of a parcel of land Identified as Lot 202-
F-13 embraced on transfer Certificate of Title No. T-34254 of the
Registry of Deeds of Davao City. On this land stands the house
of defendant Francisco Ang Singco who had a verbal lease
contract with herein plaintiffs. The monthly agreed rental is
P25.00.
On July of 1977, without the knowledge and consent of
plaintiffs, defendant Ang Singco sold his house to his CO-
defendants, the Laurecios. When plaintiff Marietta Dakudao
visited the premises in question, she was told of the transaction
that transpired between Ang Singco and the Laurecios. Ang
Singco left the premises in July or August of 1977 knowing that
he was in arrears in his rentals for one year and seven months.
Since the house is at present occupied by the Laurecios,
plaintiffs through Marietta Dakudao demanded that they vacate
the premises and for the payment of the use and occupation of
the same at P100.00 a month. The Laurecios were willing to pay
P50.00 a month and for failure to reach an agreement for the
rental of the premises, plaintiffs filed this suit. Having received
an adverse judgment, applicants elevated the same with the
assignment of errors...
In its decision dated July 18, 1979, the City Court of Davao City, Branch II
dismissed the case for unlawful detainer against the Laurecios. With respect to
defendant Ang Singco, the Court ruled that the action against him was converted
into a simple one for collection of back rentals since he was no longer in
possession of the land leased to him. (Decision of City Court, Annex "C", Rollo, p.
58)
As regards the respondents Federico and Carmen Laurecio, the City Court held:
1. That there has never been a contract of lease, expressed or
implied, between the plaintiff and the defendant Laurecios as
regards that portion of land occupied by the house sold to them
by the original lessee Francisco Ang Singco. This is the
contention and theory of the plaintiffs. The defendants
Laurecios cannot be considered as the lawful successor-in-
interest of the original lessee of the land occupied by the house
sold. (Art. 1649 Civil Code);
2. That the demand of the plaintiffs upon the defendant
Laurecios was to vacate the premises occupied by the house
they purchased from the defendant Ang Singco and to pay the
reasonable compensation for the use of said premises, not back
rentals.
With the foregoing facts as background, are the plaintiffs
entitled to the remedy of unlawful detainer as against the
defendants? The Court does not believe so because the essence
of the action for unlawful detainer is the existence of a contract,
expressed or implied, between the plaintiff and the defendant. ...
(Decision of the City Court of Davao, Annex "C", Rollo, p. 57).
Having received an adverse judgment, the petitioners elevated the case to the
Court of First Instance of Davao, Branch II. (Annex "H", Rollo, P. 69)
On January 15, 1980, the CFI of Davao modified the abovementioned decision of
the City Court of Davao City. The Court held
This Court does not agree with the foregoing findings. When
defendant Ang Singco sold his house to his co-defendants
without the consent and knowledge of herein plaintiffs, there
was stealth employed and this allegation is incorporated in the
pleadings as well as in the trial of this case. However, an implied
contract of lease was created when plaintiffs demanded of the
Laurecios to pay rental over the parcel of land as compensation
for the occupation thereof hence an unlawful detainer case can
be filed against the Laurecios.
On February 14, 1980, the private respondents Med a motion for reconsideration
of the decision of the CFI of Davao on the following grounds:
I THAT THE EVIDENCE IS INSUFFICIENT TO JUSTIFY THE
DECISION; and
II THAT THE DECISION IS AGAINST THE LAW AND/OR
JURISPRUDENCE.
In its order dated June 10, 1980, the CFI of Davao City reconsidered and set aside
its decision and entered a new one affirming in toto the appealed decision of the
City Court. According to the amended decision:
xxx xxx xxx
The Court, after a thorough consideration of the pleadings filed,
finds that it committed an error in modifying the decision of the
court a quo. The fact of lease and the expiration of its are the
essential elements of an unlawful detainer case. Since no
contract had been executed, either express or implied, an action
for unlawful detainer win not lie against the Laurecios.
xxx xxx xxx
The petitioners moved for the reconsideration of the amended ruling. However,
the CFI of Davao, in its order dated July 18, 1980, denied the motion for
reconsideration of the plaintiffs-appellees for lack of merit.
The plaintiffs-appellees, therefore, filed this instant petition for review on
certiorari raising the following arguments:
1. That although there is no contract express or implied,
between plaintiffs and defendants Laurecios, an action for
unlawful detainer nevertheless lies against said respondents.
2. That respondents Laurecios who occupy the land of
petitioners at the latter's tolerance, without any contract
between them are necessarily bound by an implied promise that
they will vacate upon demand, failing which a summary action
for unlawful detainer is the proper remedy against them.
3. That even assuming for the sake of argument that an action
for unlawful detainer win not lie against respondents Laurecios,
petitioners have nevertheless alleged and proven strategy and
stealth on the part of said respondents regarding their entry
into, and occupation of, the leased premises sufficient to make
out an action for forcible entry against them.
This is a good example of how persons who have failed to adduce any legal
grounds for their continued stay on property "I to another have nonetheless
managed to stave off eviction for more than four years through the improper use
of procedural technicalities and reliance on delays caused by heavy caseloads of
courts of justice.
In its June 18, 1979 decision, the City Court of Davao City admitted that the
plaintiffs had a right to recover possession of the land involved in the litigation
but "unfortunately" for them their cause of action did not fit within an unlawful
detainer case. Neither could it be a forcible entry case, according to the judge,
because the plaintiffs failed to allege in the pleadings or prove with evidence the
fact that the defendants occupied the land through stealth and strategy
The primary argument of the respondents Laurecio in this petition is that they are
not unlawfully withholding possession from the petitioners after the expiration or
termination of the right to hold possession by virtue of any contract because
there never was any contract express or implied between them and the
petitioners.
The private respondents further claim that they cannot be considered privies or
successors-in-interest of the former lessee, Francisco Ang Singco, because Article
1649 of the Civil Code provides that "the lessee cannot assign the lease without
the consent of the lessor, unless there is a stipulation to the contrary." The
respondents fail to state by what right they are occupying the land. If they have
no contract, express or implied with the owners and they have no claim as
successors-in-interest of the former lessee, they become mere usurpers or
squatters through their own admission. Article 1649 of the Civil Code is intended
to protect the owner of the leased property. It was never intended to permit one
who claims no right to the premises to avoid ejectment by the dubious allegation
that his occupation is not lawful as the Civil Code prohibits it.
As a matter of fact, the respondents averred in their answer filed with the City
Court of Davao City that the plaintiffs, now petitioners, gave their consent when
the Laurecios purchased the house from Ang Singco "otherwise the defendants
Laurecio could have desisted from buying the subject house." The defendants
averred that the Laurecios and the petitioners agreed to maintain the P25.00
monthly rentals at the time of the sale in July, 1977 but a year later, the lot
owners suddenly raised the rent to P50.00 monthly and that "if defendants
Laurecio have failed to pay their rental, the same is due to plaintiffs' unreasonable
and malicious refusal to receive the payments." The present claim of the
respondents on the absence of any contract or agreement is due to their taking
advantage of the ruling of the respondent court that "since no contract had been
executed, either express or implied, an action for unlawful detainer will not lie
against the Laurecios." It was not an original defense.
The City Court found the averments of the private respondents in their answer as see what advantage to the administration of justice would be served if we allow
contrary to the evidence. The facts are: the private respondents to argue that, perhaps, they should be prosecuted for
forcible entry and not unlawful detainer. In their opposition dated July 9, 1979,
It is established by the evidence that the plaintiffs have never
the private respondents alleged as ground for the opposition:
consented or ratified the sale of the house in question by the
defendant Ang Singco to the Laurecios. There has never been THAT PLAINTIFFS' ALLEGATIONS IN THEIR COMPLAINT AND
any definite agreement between the plaintiff and the Laurecios THE EVIDENCE THEY ADDUCED DO NOT PROVE ANY CAUSE OF
as to the amount of rentals the latter were going to pay. In fact ACTION FOR FORCIBLE ENTRY AGAINST THE DEFENDANTS
the Laurecios have not paid any amount by way of rentals to the LAURECIOS.
plaintiff except that which they deposited in Court during the
Moreover, there is no conflict between the cases abovementioned and the case
pendency of this case on February 2, 1979 in the amount of
of Cachuela v. Francisco. As far as the petitioners are concerned, it may rightly be
P450.00 for the period from August, 1977 to January, 1979
said that any supposed tolerance of the occupation by the respondents Laurecios
(Exhibit '3' and Exhibit '4').
was from February, 1978, when they first discovered the respondents to be in
Since there was no contract between the lot owners and the Laurecios, the latter's possession of the premises. To petitioners, this was the start of the respondent
occupation of the land is only as successors of Ang Singco from whom they Laurecios' occupation since the latter's actual entry into the premises in July or
purchased the house built on the lot. If Article 1649 had been followed and the August, 1977 had been concealed from the petitioners.
consent of the owners to the sale secured, the Laurecios would be more than
Considering the foregoing, we see no need to discuss the third "question of law"
mere successors-in-interest. They would have become the new lessees. The
raised in the petition.
unlawful detainer case was proper.
Equitable considerations also dictate that procedural technicalities, even if valid
If we view the failure of the petitioners to file an ejectment case from February,
which they are not, should not be allowed to stand in the way of substantial
1978 when they first learned of the respondents presence on their land up to
justice. The certification from the Clerk of Court of the City Court of Davao shows
June 1, 1978 when the letter demanding that they vacate the lot was sent, as
that no deposits for rentals have been made from February, 1980 up to the date
tolerance or permission by the owners, the unlawful detainer case is still proper.
of the certification on March 9, 1982. The certification of the Acting Clerk of Court
We held in the case of Vda. de Cachuela v. Francisco (.98 SCRA 172) citing the of the Court of First Instance of Davao shows that no deposits for rentals in this
case of Calubayan v. Pascual (21 SCRA 146, 148) that a person who occupies the case are being made in that court.
land of another at the latter's tolerance or permission, without any contract
WHEREFORE, the judgment of the respondent court is hereby set aside. The
between them, is necessarily bound by an implied promise that he will vacate
private respondents are ordered to vacate the disputed premises. Respondents
upon demand, failing which a summary action for ejectment is the proper remedy
Laurecio are ordered to pay the amount of Fifty Pesos (P50.00) a month as
against him. The status of the defendant is analogous to that of a lessee or tenant
reasonable compensation for the use and occupation of the premises beginning
whose term of lease has expired but whose occupancy continued by tolerance of
August, 1977 until they finally vacate the premises, minus whatever amounts may
the owner. In such a case, the unlawful deprivation or withholding of possession
have been deposited as rentals with the court for delivery to the petitioners and
is to be counted from the date of the demand to vacate. Likewise in the case
to pay P500.00 in attorney's fees. The portion of the decisions of the City Court
of Yu v. de Lara (6 SCRA 785), we ruled that the proper remedy against a person
and the respondent court as regards Francisco Ang Singco is affirmed. This
who occupies the land of another, who has no contract with the owner, and
decision is immediately executory.
whose possession is merely tolerated, but who refuses to vacate despite demand,
is the summary action for ejectment. SO ORDERED.

The respondents Laurecios argue that the tolerance by the petitioners must be
present right from the start of the possession sought to be recovered, to
categorize a cause of action as one of unlawful detainer, not of forcible entry,
citing the cases of Sarona, et al vs. Villegas, et al. (22 SCRA 1257)
and Monteblanco v. Hinigaran Sugar Plantation (63 Phil. 797, 802, 803). We fail to
 [G.R. No. L-8221. January 31, 1956.]
EDUARDO MANLAPAT, Plaintiff-Appellant, vs. SIMEON
SALAZAR, Defendant-Appellee.
DECISION
REYES, A., J.:
This is an appeal from a judgment of the Court of First Instance of Bulacan,
dismissing Plaintiffs action for the recovery of a fishpond through annulment of
certain contracts of lease and sublease. The appeal has been certified to this
court on the ground that it involves only questions of law.
The material facts are not in dispute. The fishpond in question formerly belonged
to three co-owners who had taken turns in leasing it to the same person,
Bernardo Enriquez. The last lease was signed in 1931 and was to last until June 1,
1967. After the death of Bernardo Enriquez, his widow, Esperanza Guillen,
subleased the fishpond, first, to Dr. Macario Cuerpo Cruz and thereafter to the
present Defendant Simeon Salazar, the sublease to the latter to commence from
May 31, 1947 and last until May 31, 1967. In 1952, with the co-owners of the
fishpond already dead, their sole heir, Plaintiff Eduardo Manlapat, brought the
present action in the Court of First Instance of Bulacan against the subleasee
Simeon Salazar to recover possession of the fishpond, alleging that the sublease
to the Defendant, as well as the leases executed by Plaintiffs predecessors in
interest, was null and void. But the court decided that those contracts were valid
and dismissed Plaintiffs action with costs. Hence, the present appeal, which,
however, involves only the sublease to the Appellee, the Appellant contending
that the lower court erred in declaring the same valid and binding.
The Appellant impugns the validity of the sublease to the Appellee on the theory
that it is not really a sublease, which, under both the old and the new Civil
Code, would be valid even though entered into without the consent of the lessors
since there was no prohibition against it in the contract of lease but a veritable
assignment of lease, which, in Appellants opinion, is void for want of such
consent.
The essential difference between an assignment of lease and a mere sublease is
given by Manresa thus:chanroblesvirtuallawlibrary
cralaw En la cesion, al arrendatario transmite en absoluto su derecho, su
personalidad desaparece, quedan solamente en la relacion juridica dos personas,
el arrendador y el cesionario, que se convierte en arrendatario. En el subarriendo
no desaparece personalidad alguna; chan roblesvirtualawlibraryhay dos arriendos
y dos relaciones juridicas diferentes, aunque intimamente ligadas y relacionadas
la una con la otra. (10 Manresa 1950 ed., p. 510.)
To the same effect is the following from Valverde:chanroblesvirtuallawlibrary
El subarriendo supone un nuevo arrendamiento, convirtiendo al arrendatario en
arrendador, pero sin que el subarrendador se desligue por completo del
arrendamiento primitivo; chan roblesvirtualawlibrarymientras que en la cesion del
arrendamiento, el cesionario se coloca en luger del cedente, continuando el
arrendamiento en las mismas condiciones y quedando el arrendatario, en virtud
de la cesion de su derecho, completamente desligado de responsabilidad con el
arrendador. Estos dos contratos se parecen:chanroblesvirtuallawlibrary el primero
al arrendamiento, y el segundo a la venta. (Valverde, Tratado de Derecho Civil
Espaol, Tomo 3, pag. 474.)
To determine then whether a given contract constitutes an assignment of lease
and not a mere sublease, the test is whether the lessee has by said contract made
an absolute transfer of his interest as such lessee, thus dissociating himself from
the original contract of lease, so that, as Manresa would say, his personality
disappears and there remain only in the juridical relation two persons, the lessor
and the assignee, who is converted into a lessee.
The same test is applied, at common law, where the transfer of a leasehold by the
lessee is deemed an assignment of lease only if he cedes his entire interest in the
estate; chan roblesvirtualawlibrarywhereas, if he retains a reversionary interest,
however small, the transfer is deemed a mere sublease. (32 Am. Jur. 290; chan
roblesvirtualawlibrary51 C.J. S. 553.) So, if the lessee underlets for a period less
than the entire term or reserves for himself a reversionary interest in the term, the
transaction is a subletting. (51 C.J. S. 555.)
With the above distinction in mind, it seems obvious from an examination of the
terms of the document executed by Esperanza Guillen in favor of the Appellee
identified in evidence as Exhibit 5 that the said document is one of sublease.
In the first place, the original lease is, as already stated, to last until June 1,
1967. On the other hand, the sublease is to last only until May 31 of that year.
The sublease is thus for a shorter period than the original lease. A reservation of
even so short a period as the last day of the term is enough to make the transfer
a sublease. (35 C.J. 990; chan roblesvirtualawlibraryDavis vs. Morris, 36 NY 569.)
Indeed, it is held that the mere fact that the lessor is to receive a surrender of
the premises on the last day of the term prevents the transfer from being an
assignment. (Murdock et al. vs. Fishel et al., 121 NYS 624; chan
roblesvirtualawlibrary35 C.J. 989.) It is true that the sublessor states in Exhibit 5
that her possession under the original lease would last up to May 31, 1967
(tatagal pa hanggang sa Mayo 31, 1967), and from this Appellant argues that in
fixing the term of the sublease so that it would expire on May 31, 1967, the
sublessor must have intended to transfer her entire interest in the lease. The
argument, however, is based upon mere conjecture. Actually, the sublessor has
not transferred her interest for the entire period of the original lease, and this
may well be due to a desire to repossess the fishpond earlier so that she could
prepare it for delivery to the owner.
The terms of the sublease Exhibit 5, also furnish further proof that the lessee,
now sublessor, has not dissociated herself from the original lease and that, as
Manresa would say, her personality has not disappeared. Condition No. 2, which
binds her to respect the sublease and to pay damages should she again sublease
the fishpond to another person, is inconsistent with the idea that she had entirely
given up her interest in the estate. Equally inconsistent with this idea are
condition No. 3, in which the sublessor binds herself to pay the land taxes on the
fishpond and such other taxes as may be exacted by the Government; chan
roblesvirtualawlibrarycondition No. 4, which forbids the cutting of any tree in the
fishpond without the sublessors written consent; chan roblesvirtualawlibraryand
lastly, condition No. 5, which requires the sublessee to return the fishpond upon
the expiration of the sublease in as good a condition as when he took possession
of it. With regard to the condition last named, Appellant observes that it does not
specify that it is to the sublessor that the fishpond is to be returned by the
sublessee. But how could the sublessor determine the condition of the fishpond if
the same were not to be returned to her ? Moreover, as the contract is between
sublessor and sublessee, the return of the property object of the contract would
naturally, in the absence of a different stipulation, have to be made to the
sublessor.
Notice may also be taken of the fact that the sublessor has, in her contract with
the sublessee, used the Tagalog word pabubuwisan (will lease). She
says:chanroblesvirtuallawlibrary cralaw aking isasalin, ililipat at pabubuwisan ang
aking posicion at pamumuwisan sa nabanguit na palaisdaan cralaw This clause
clearly means that the lessee is transferring possession of the fishpond under
lease to her and renting it (i.e. subleasing it) to the transferee.
It being clear that the contract Exhibit 5 is a sublease, the trial court did not err
in considering it as such and in declaring it valid, there being nothing against it in
the original contract of lease.
Having arrived at this conclusion, we deem it unnecessary to go into the question
of whether the contract embodied in Exhibit 5 would be void or not if
considered as an assignment of lease.
Wherefore, the judgment appealed from is affirmed, with costs against Appellant.
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN,
INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the respondent
appellate court analyzed and interpreted particular provisions of our
laws on contracts and sales. In its assailed decision, the respondent court
reversed the trial court 3 which, in dismissing the complaint for specific
performance with damages and annulment of contract, 4found the
option clause in the lease contracts entered into by private respondent
Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo &
Bauermann, Inc. (hereafter, Carmelo) to be impossible of performance
and unsupported by a consideration and the subsequent sale of the
subject property to petitioner Equatorial Realty Development, Inc.
(hereafter, Equatorial) to have been made without any breach of or
prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court,
which narration, we note, is almost verbatim the basis of the statement
of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey
buildings constructed thereon located at Claro M Recto Avenue,
Manila, and covered by TCT No. 18529 issued in its name by the
Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with
Mayfair for the latter's lease of a portion of Carmelo's property
particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the
two-storey building, situated at C.M. Recto
Avenue, Manila, with a floor area of 1,610
square meters.
THE SECOND FLOOR AND MEZZANINE of the
two-storey building, situated at C.M. Recto
Avenue, Manila, with a floor area of 150 square
meters.
for use by Mayfair as a motion picture theater and for a term of
twenty (20) years. Mayfair thereafter constructed on the leased
property a movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a
second contract of lease with Carmelo for the lease of another
portion of Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the
two-storey building, situated at C.M. Recto
Avenue, Manila, with a floor area of 1,064
square meters.
THE TWO (2) STORE SPACES AT THE GROUND
FLOOR and MEZZANINE of the two-storey
building situated at C.M. Recto Avenue, Manila,
with a floor area of 300 square meters and
bearing street numbers 1871 and 1875,
for similar use as a movie theater and for a similar term of
twenty (20) years. Mayfair put up another movie house known
as "Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given 30-
days exclusive option to purchase the same.
In the event, however, that the leased premises
is sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it hereby
binds and obligates itself, to stipulate in the
Deed of Sale hereof that the purchaser shall
recognize this lease and be bound by all the
terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo
informed Mr. Henry Yang, President of Mayfair, through a
telephone conversation that Carmelo was desirous of selling the
entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a
certain Jose Araneta was offering to buy the whole property for
US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter
was willing to buy the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his
decision. On August 23, 1974, Mayfair replied through a letter
stating as follows:
It appears that on August 19, 1974 your Mr.
Henry Pascal informed our client's Mr. Henry
Yang through the telephone that your
company desires to sell your above-mentioned
C.M. Recto Avenue property.
Under your company's two lease contracts with
our client, it is uniformly provided:
8. That if the LESSOR should desire to sell the
leased premises the LESSEE shall be given 30-
days exclusive option to purchase the same. In
the event, however, that the leased premises is
sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it is (sic)
herebinds (sic) and obligates itself, to stipulate
in the Deed of Sale thereof that the purchaser
shall recognize this lease and be bound by all
the terms and conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo
purporting to express interest in acquiring not only the leased
premises but "the entire building and other improvements if the
price is reasonable. However, both Carmelo and Equatorial
questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M.
Recto Avenue land and building, which included the leased
premises housing the "Maxim" and "Miramar" theatres, to
Equatorial by virtue of a Deed of Absolute Sale, for the total sum
of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for
specific performance and annulment of the sale of the leased
premises to Equatorial. In its Answer, Carmelo alleged as special
and affirmative defense (a) that it had informed Mayfair of its
desire to sell the entire C.M. Recto Avenue property and offered
the same to Mayfair, but the latter answered that it was
interested only in buying the areas under lease, which was
impossible since the property was not a condominium; and (b)
that the option to purchase invoked by Mayfair is null and void
for lack of consideration. Equatorial, in its Answer, pleaded as
special and affirmative defense that the option is void for lack of
consideration (sic) and is unenforceable by reason of its
impossibility of performance because the leased premises could
not be sold separately from the other portions of the land and
building. It counterclaimed for cancellation of the contracts of
lease, and for increase of rentals in view of alleged supervening
extraordinary devaluation of the currency. Equatorial likewise
cross-claimed against co-defendant Carmelo for indemnification
in respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the
parties stipulated on the following:
1. That there was a deed of sale of the
contested premises by the defendant Carmelo
. . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear
(sic) the stipulation granting the plaintiff
exclusive option to purchase the leased
premises should the lessor desire to sell the
same (admitted subject to the contention that
the stipulation is null and void);
3. That the two buildings erected on this land
are not of the condominium plan;
4. That the amounts stipulated and mentioned
in paragraphs 3 (a) and (b) of the contracts of
lease constitute the consideration for the
plaintiff's occupancy of the leased premises,
subject of the same contracts of lease, Exhibits
A and B;
xxx xxx xxx
6. That there was no consideration specified in
the option to buy embodied in the contract;
7. That Carmelo & Bauermann owned the land
and the two buildings erected thereon;
8. That the leased premises constitute only the
portions actually occupied by the theaters; and
 9. That what was sold by Carmelo &
Bauermann to defendant Equatorial Realty is
the land and the two buildings erected
thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the
appealed decision, the decretal portion of which reads as
follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against
the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo
& Bauermann P40,000.00 by way of attorney's
fees on its counterclaim;
(3) Ordering plaintiff to pay defendant
Equatorial Realty P35,000.00 per month as
reasonable compensation for the use of areas
not covered by the contract (sic) of lease from
July 31, 1979 until plaintiff vacates said area
(sic) plus legal interest from July 31, 1978;
P70,000 00 per month as reasonable
compensation for the use of the premises
covered by the contracts (sic) of lease dated
(June 1, 1967 from June 1, 1987 until plaintiff
vacates the premises plus legal interest from
June 1, 1987; P55,000.00 per month as
reasonable compensation for the use of the
premises covered by the contract of lease
dated March 31, 1969 from March 30, 1989
until plaintiff vacates the premises plus legal
interest from March 30, 1989; and P40,000.00
as attorney's fees;
(4) Dismissing defendant Equatorial's
crossclaim against defendant Carmelo &
Bauermann.
The contracts of lease dated June 1, 1967 and
March 31, 1969 are declared expired and all
persons claiming rights under these contracts
are directed to vacate the premises. 6
The trial court adjudged the identically worded paragraph 8 found in
both aforecited lease contracts to be an option clause which however
cannot be deemed to be binding on Carmelo because of lack of distinct
consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties
that the option in the contract of lease is not supported by a
separate consideration. Without a consideration, the option is
therefore not binding on defendant Carmelo & Bauermann to
sell the C.M. Recto property to the former. The option invoked
by the plaintiff appears in the contracts of lease . . . in effect
there is no option, on the ground that there is no consideration.
Article 1352 of the Civil Code, provides:
Contracts without cause or with unlawful
cause, produce no effect whatever. The cause
is unlawful if it is contrary to law, morals, good
custom, public order or public policy.
Contracts therefore without consideration produce no effect
whatsoever. Article 1324 provides:
When the offeror has allowed the offeree a
certain period to accept, the offer may be
withdrawn at any time before acceptance by
communicating such withdrawal, except when
the option is founded upon consideration, as
something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing
for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to
sell a determine thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from the
price.
The plaintiff cannot compel defendant Carmelo to comply with
the promise unless the former establishes the existence of a
 distinct consideration. In other words, the promisee has the
burden of proving the consideration. The consideration cannot
be presumed as in Article 1354:
Although the cause is not stated in the
contract, it is presumed that it exists and is
lawful unless the debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354
applies to contracts in general, whereas when it comes to an
option it is governed particularly and more specifically by Article
1479 whereby the promisee has the burden of proving the
existence of consideration distinct from the price. Thus, in the
case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in general,
whereas the second paragraph of Article 1479
refers to sales in particular, and, more
specifically, to an accepted unilateral promise
to buy or to sell. In other words, Article 1479 is
controlling in the case at bar.
(2) In order that said unilateral promise may be
binding upon the promissor, Article 1479
requires the concurrence of a condition,
namely, that the promise be supported by a
consideration distinct from the price.
Accordingly, the promisee cannot compel the
promissor to comply with the promise, unless
the former establishes the existence of said
distinct consideration. In other words, the
promisee has the burden of proving such
consideration. Plaintiff herein has not even
alleged the existence thereof in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo &
Bauermann to sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the
battleground shifted to the respondent Court of Appeals. Respondent
appellate court reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay
and return to Equatorial the amount of P11,300,000.00 within
fifteen (15) days from notice of this Decision, and ordering
Equatorial Realty Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000, directing
Equatorial Realty Development, Inc. to execute the deeds and
documents necessary for the issuance and transfer of ownership
to Mayfair of the lot registered under TCT Nos. 17350, 118612,
60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to
pay the amount as adjudged, declaring the Deed of Absolute
Sale between the defendants-appellants Carmelo & Bauermann,
Inc. and Equatorial Realty Development, Inc. as valid and
binding upon all the parties. 8
Rereading the law on the matter of sales and option contracts,
respondent Court of Appeals differentiated between Article 1324 and
Article 1479 of the Civil Code, analyzed their application to the facts of
this case, and concluded that since paragraph 8 of the two lease
contracts does not state a fixed price for the purchase of the leased
premises, which is an essential element for a contract of sale to be
perfected, what paragraph 8 is, must be a right of first refusal and not an
option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles
1324 and 1479, second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the
offeree may or may not accept within a certain period. Under
this article, the offer may be withdrawn by the offeror before the
expiration of the period and while the offeree has not yet
accepted the offer. However, the offer cannot be withdrawn by
the offeror within the period if a consideration has been
promised or given by the offeree in exchange for the privilege
of being given that period within which to accept the offer. The
consideration is distinct from the price which is part of the offer.
The contract that arises is known as option. In the case
of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing
Bouvier, defined an option as follows: "A contract by virtue of
which A, in consideration of the payment of a certain sum to B,
acquires the privilege of buying from or selling to B, certain
securities or properties within a limited time at a specified
price," (pp. 686-7).
Article 1479, second paragraph, on the other hand,
contemplates of an "accepted unilateral promise to buy or to
sell a determinate thing for a price within (which) is binding
upon the promisee if the promise is supported by a
consideration distinct from the price." That "unilateral promise
to buy or to sell a determinate thing for a price certain" is called
an offer. An "offer", in laws, is a proposal to enter into a contract
(Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer,
the proposal must be certain as to the object, the price and
other essential terms of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the
provision granting Mayfair "30-days exclusive option to
purchase" the leased premises is NOT AN OPTION in the
context of Arts. 1324 and 1479, second paragraph, of the Civil
Code. Although the provision is certain as to the object (the sale
of the leased premises) the price for which the object is to be
sold is not stated in the provision Otherwise stated, the
questioned stipulation is not by itself, an "option" or the "offer
to sell" because the clause does not specify the price for the
subject property.
Although the provision giving Mayfair "30-days exclusive option
to purchase" cannot be legally categorized as an option, it is,
nevertheless, a valid and binding stipulation. What the trial court
failed to appreciate was the intention of the parties behind the
questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type
customarily found in a contract of lease. Even appellees have
recognized that the stipulation was incorporated in the two
Contracts of Lease at the initiative and behest of Mayfair.
Evidently, the stipulation was intended to benefit and protect
Mayfair in its rights as lessee in case Carmelo should decide,
during the term of the lease, to sell the leased property. This
intention of the parties is achieved in two ways in accordance
with the stipulation. The first is by giving Mayfair "30-days
exclusive option to purchase" the leased property. The second
is, in case Mayfair would opt not to purchase the leased
property, "that the purchaser (the new owner of the leased
property) shall recognize the lease and be bound by all the
terms and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease,
particularly the stipulation giving Mayfair "30-days exclusive
option to purchase the (leased premises)," was meant to provide
Mayfair the opportunity to purchase and acquire the leased
property in the event that Carmelo should decide to dispose of
the property. In order to realize this intention, the implicit
obligation of Carmelo once it had decided to sell the leased
property, was not only to notify Mayfair of such decision to sell
the property, but, more importantly, to make an offer to sell the
leased premises to Mayfair, giving the latter a fair and
reasonable opportunity to accept or reject the offer, before
offering to sell or selling the leased property to third parties.
The right vested in Mayfair is analogous to the right of first
refusal, which means that Carmelo should have offered the sale
of the leased premises to Mayfair before offering it to other
parties, or, if Carmelo should receive any offer from third parties
to purchase the leased premises, then Carmelo must first give
Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a
right of first refusal when he made the telephone call to Mr.
Yang in 1974. Mr. Pascal thus testified:
Q Can you tell this Honorable
Court how you made the
offer to Mr. Henry Yang by
telephone?
A I have an offer from
another party to buy the
property and having the offer
we decided to make an offer
to Henry Yang on a first-
refusal basis. (TSN November
8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang
on August 1974 can you
remember exactly what you
have told him in connection
with that matter, Mr. Pascal?
 A More or less, I told him that
I received an offer from
another party to buy the
property and I was offering
him first choice of the enter
property. (TSN, November 29,
1983, p. 18).
We rule, therefore, that the foregoing interpretation best
renders effectual the intention of the parties.9
Besides the ruling that paragraph 8 vests in Mayfair the right of first
refusal as to which the requirement of distinct consideration
Carmelo and Equatorial now comes before us questioning the
indispensable in an option contract, has no application, respondent
correctness and legal basis for the decision of respondent Court of
appellate court also addressed the claim of Carmelo and Equatorial that
Appeals on the basis of the following assigned errors:
assuming arguendo that the option is valid and effective, it is impossible
of performance because it covered only the leased premises and not the
entire Claro M. Recto property, while Carmelo's offer to sell pertained to
the entire property in question. The Court of Appeals ruled as to this
issue in this wise:
We are not persuaded by the contentions of the defendants-
appellees. It is to be noted that the Deed of Absolute Sale
between Carmelo and Equatorial covering the whole Claro M.
Recto property, made reference to four titles: TCT Nos. 17350,
118612, 60936 and 52571. Based on the information submitted
by Mayfair in its appellant's Brief (pp. 5 and 46) which has not
been controverted by the appellees, and which We, therefore,
take judicial notice of the two theaters stand on the parcels of
land covered by TCT No. 17350 with an area of 622.10 sq. m and
TCT No. 118612 with an area of 2,100.10 sq. m. The existence of
four separate parcels of land covering the whole Recto property
demonstrates the legal and physical possibility that each parcel
of land, together with the buildings and improvements thereof,
could have been sold independently of the other parcels.
At the time both parties executed the contracts, they were
aware of the physical and structural conditions of the buildings
on which the theaters were to be constructed in relation to the
remainder of the whole Recto property. The peculiar language
of the stipulation would tend to limit Mayfair's right under
paragraph 8 of the Contract of Lease to the acquisition of the
leased areas only. Indeed, what is being contemplated by the
questioned stipulation is a departure from the customary
situation wherein the buildings and improvements are included
in and form part of the sale of the subjacent land. Although this
situation is not common, especially considering the non-
condominium nature of the buildings, the sale would be valid
and capable of being performed. A sale limited to the leased
premises only, if hypothetically assumed, would have brought
into operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the leased
premises and at the same time a co-owner with Carmelo of the
subjacent land in proportion to Mayfair's interest over the
premises sold to it. 10
I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING
THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS
ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO
THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF
LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR
AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH
OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE
COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO
EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT
OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE
CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30
DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE
ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT
WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES
IN THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED
 THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL
HERRERA, TO RESOLVE ALL THE MOTIONS IN THE
"COMPLETION PROCESS" AND TO STILL RESOLVE THE MERITS
OF THE CASE IN THE "DECISION STAGE". 11
We shall first dispose of the fourth assigned error respecting alleged
irregularities in the raffle of this case in the Court of Appeals. Suffice it to
say that in our Resolution, 12 dated December 9, 1992, we already took
note of this matter and set out the proper applicable procedure to be
the following:
On September 20, 1992, counsel for petitioner Equatorial Realty
Development, Inc. wrote a letter-complaint to this Court
alleging certain irregularities and infractions committed by
certain lawyers, and Justices of the Court of Appeals and of this
Court in connection with case CA-G.R. CV No. 32918 (now G.R.
No. 106063). This partakes of the nature of an administrative
complaint for misconduct against members of the judiciary.
While the letter-complaint arose as an incident in case CA-G.R.
CV No. 32918 (now G.R. No. 106063), the disposition thereof
should be separate and independent from Case G.R. No.
106063. However, for purposes of receiving the requisite
pleadings necessary in disposing of the administrative
complaint, this Division shall continue to have control of the
case. Upon completion thereof, the same shall be referred to the
Court En Banc for proper disposition. 13
This court having ruled the procedural irregularities raised in the fourth
assigned error of Carmelo and Equatorial, to be an independent and
separate subject for an administrative complaint based on misconduct
by the lawyers and justices implicated therein, it is the correct, prudent
and consistent course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said irregularities.
Certainly, a discussion thereupon by us in this case would entail a finding
on the merits as to the real nature of the questioned procedures and the
true intentions and motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature, scope and
efficacy of paragraph 8 stipulated in the two contracts of lease between
Carmelo and Mayfair in the face of conflicting findings by the trial court
and the Court of Appeals; and (2) to determine the rights and
obligations of Carmelo and Mayfair, as well as Equatorial, in the
aftermath of the sale by Carmelo of the entire Claro M. Recto property to
Equatorial.
Both contracts of lease in question provide the identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in
the Deed of Sale thereof that the purchaser shall recognize this
lease and be bound by all the terms and conditions thereof. 14
We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract. It is a contract of
a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was
our characterization of an option contract as one necessarily involving
the choice granted to another for a distinct and separate consideration
as to whether or not to purchase a determinate thing at a predetermined
fixed price.
It is unquestionable that, by means of the document Exhibit E,
to wit, the letter of December 4, 1911, quoted at the beginning
of this decision, the defendant Valdes granted to the plaintiff
Borck the right to purchase the Nagtajan Hacienda belonging to
Benito Legarda, during the period of three months and for its
assessed valuation, a grant which necessarily implied the offer
or obligation on the part of the defendant Valdes to sell to
Borck the said hacienda during the period and for the price
mentioned . . . There was, therefore, a meeting of minds on the
part of the one and the other, with regard to the stipulations
made in the said document. But it is not shown that there was
any cause or consideration for that agreement, and this
omission is a bar which precludes our holding that the
stipulations contained in Exhibit E is a contract of option, for, . . .
there can be no contract without the requisite, among others, of
the cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option
as a contract, in the following language:
 A contract by virtue of which A, in
consideration of the payment of a certain
sum to B, acquires the privilege of buying from,
or selling to B, certain securities or properties
within a limited time at a specified price. (Story
vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing
the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St.
Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the
option to purchase lands within a given time at
a named price is neither a sale nor an
agreement to sell. It is simply a contract by
which the owner of property agrees with
another person that he shall have the right to
buy his property at a fixed price within a certain
time. He does not sell his land; he does not
then agree to sell it; but he does sell
something; that is, the right or privilege to buy
at the election or option of the other party.
The second party gets in praesenti, not lands,
nor an agreement that he shall have lands, but
he does get something of value; that is, the
right to call for and receive lands if he elects.
The owner parts with his right to sell his lands,
except to the second party, for a limited
period. The second party receives this right, or,
rather, from his point of view, he receives the
right to elect to buy.
But the two definitions above cited refer to the contract of
option, or, what amounts to the same thing, to the case where
there was cause or consideration for the obligation, the subject
of the agreement made by the parties; while in the case at bar
there was no such cause or consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of option
or the option clause in a contract, in order to be valid and enforceable,
must, among other things, indicate the definite price at which the person
granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased
property for a named price per square meter upon failure to make the purchase
within the time specified; 17 in one other case we freed the landowner from her
promise to sell her land if the prospective buyer could raise P4,500.00 in three
weeks because such option was not supported by a distinct consideration; 18 in
the same vein in yet one other case, we also invalidated an instrument entitled,
"Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of
consideration; 19 and as an exception to the doctrine enumerated in the two
preceding cases, in another case, we ruled that the option to buy the leased
premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of
each party is the consideration for that of the other. 20 In all these cases, the
selling price of the object thereof is always predetermined and specified in the
option clause in the contract or in the separate deed of option. We elucidated,
thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals 21 that:
. . . In sales, particularly, to which the topic for discussion about
the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to
deliver and to transfer ownership of a thing or right to another,
called the buyer, over which the latter agrees. Article 1458 of the
Civil Code provides:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to
transfer the ownership of and to deliver a
determinate thing, and the other to pay
therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or
conditional.
When the sale is not absolute but conditional, such as in a
"Contract to Sell" where invariably the ownership of the thing
sold in retained until the fulfillment of a positive suspensive
condition (normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to convey
title from acquiring an obligatory force. . . .
An unconditional mutual promise to buy and sell, as long as the
object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may
accordingly be exacted.
An accepted unilateral promise which specifies the thing to be
sold and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is
binding upon the promisor if the promise is
supported by a consideration distinct from the
price. (1451a).
Observe, however, that the option is not the contract of sale
itself. The optionee has the right, but not the obligation, to buy.
Once the option is exercised timely, i.e., the offer is accepted
before a breach of the option, a bilateral promise to sell and to
buy ensues and both parties are then reciprocally bound to
comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an
offer. An imperfect promise (policitacion) is merely an offer.
Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as
proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the
withdrawal is effective immediately after its manifestation, such
as by its mailing and not necessarily when the offeree learns of
the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period
is given to the offeree within which to accept the offer, the
following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or if an acceptance has
been made, before the offeror's coming to know of such fact, by
communicating that withdrawal to the offeree (see Art. 1324,
Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,
holding that this rule is applicable to a unilateral promise to sell
under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319,
Civil Code; Rural Bank of Paraaque, Inc. vs. Remolado, 135
SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person
must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe
honesty and good faith."
(2) If the period has a separate consideration, a contract of
"option" deemed perfected, and it would be a breach of that
contract to withdraw the offer during the agreed period. The
option, however, is an independent contract by itself; and it is to
be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If,
in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the
latter may not sue for specific performance on the proposed
contract ("object" of the option) since it has failed to reach its
own stage of perfection. The optioner-offeror, however, renders
himself liable for damages for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the wording of
the questioned provision in the two lease contracts involved in the
instant case, we so hold that no option to purchase in contemplation of
the second paragraph of Article 1479 of the Civil Code, has been granted
to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8
grants the right of first refusal to Mayfair and is not an option contract. It
also correctly reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and
March 31, 1969 contracts which would bring them into the ambit of the
usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by
consideration. 22 In the instant case, the right of first refusal is an integral
part of the contracts of lease. The consideration is built into the
reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8
of the contracts is governed by Article 1324 on withdrawal of the offer or
Article 1479 on promise to buy and sell would render in effectual or
"inutile" the provisions on right of first refusal so commonly inserted in
leases of real estate nowadays. The Court of Appeals is correct in stating
that Paragraph 8 was incorporated into the contracts of lease for the
benefit of Mayfair which wanted to be assured that it shall be given the
first crack or the first option to buy the property at the price which
Carmelo is willing to accept. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The stipulation is
part and parcel of the entire contract of lease. The consideration for the
lease includes the consideration for the right of first refusal. Thus,
Mayfair is in effect stating that it consents to lease the premises and to
pay the price agreed upon provided the lessor also consents that, should
it sell the leased property, then, Mayfair shall be given the right to match
the offered purchase price and to buy the property at that price. As
stated in Vda. De Quirino vs. Palarca, 23 in reciprocal contract, the
obligation or promise of each party is the consideration for that of the
other.
The respondent Court of Appeals was correct in ascertaining the true
nature of the aforecited paragraph 8 to be that of a contractual grant of
the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and
liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an amplification
of the precedent in Ang Yu Asuncion vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the event
Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention
to sell the said property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties. Carmelo,
however, did not pursue the exercise to its logical end. While it initially
recognized Mayfair's right of first refusal, Carmelo violated such right
when without affording its negotiations with Mayfair the full process to
ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive option" time
granted Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire
Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it
of the property in question rescissible. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale,
studied the said contracts. As such, Equatorial cannot tenably claim to be
a purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381(3) of the Civil Code, a contract otherwise
valid may nonetheless be subsequently rescinded by reason of
injury to third persons, like creditors. The status of creditors
could be validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the subject
property to the petitioner without recognizing their right of first
priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to
the contracting parties and even to third persons, to secure
reparation for damages caused to them by a contract, even if
this should be valid, by means of the restoration of things to
their condition at the moment prior to the celebration of said
contract. It is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause, or to protect some
incompatible and preferent right created by the contract.
Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that
justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act
in bad faith. However, this rule is not applicable in the case
before us because the petitioner is not considered a third party
in relation to the Contract of Sale nor may its possession of the
subject property be regarded as acquired lawfully and in good
faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the
Contract of Sale. Moreover, the petitioner cannot be deemed a
purchaser in good faith for the record shows that it categorically
admitted it was aware of the lease in favor of the Bonnevies,
who were actually occupying the subject property at the time it
 was sold to it. Although the Contract of Lease was not
annotated on the transfer certificate of title in the name of the
late Jose Reynoso and Africa Reynoso, the petitioner cannot
deny actual knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has
a right to or interest in such property and pays a full and fair
price for the same at the time of such purchase or before he has
notice of the claim or interest of some other person in the
property. Good faith connotes an honest intention to abstain
from taking unconscientious advantage of another. Tested by
these principles, the petitioner cannot tenably claim to be a
buyer in good faith as it had notice of the lease of the property
by the Bonnevies and such knowledge should have cautioned it
to look deeper into the agreement to determine if it involved
stipulations that would prejudice its own interests.
The petitioner insists that it was not aware of the right of first
priority granted by the Contract of Lease. Assuming this to be
true, we nevertheless agree with the observation of the
respondent court that:
If Guzman-Bocaling failed to inquire about the
terms of the Lease Contract, which includes
Par. 20 on priority right given to the Bonnevies,
it had only itself to blame. Having known that
the property it was buying was under lease, it
behooved it as a prudent person to have
required Reynoso or the broker to show to it
the Contract of Lease in which Par. 20 is
contained. 25
Petitioners assert the alleged impossibility of performance because the
entire property is indivisible property. It was petitioner Carmelo which
fixed the limits of the property it was leasing out. Common sense and
fairness dictate that instead of nullifying the agreement on that basis, the
stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the right of
first refusal. A valid and legal contract where the ascendant or the more
important of the two parties is the landowner should be given effect, if
possible, instead of being nullified on a selfish pretext posited by the
owner. Following the arguments of petitioners and the participation of
the owner in the attempt to strip Mayfair of its rights, the right of first
refusal should include not only the property specified in the contracts of
lease but also the appurtenant portions sold to Equatorial which are
claimed by petitioners to be indivisible. Carmelo acted in bad faith when
it sold the entire property to Equatorial without informing Mayfair, a
clear violation of Mayfair's rights. While there was a series of exchanges
of letters evidencing the offer and counter-offers between the parties,
Carmelo abandoned the negotiations without giving Mayfair full
opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court
should also order that Mayfair be authorized to exercise its right of first
refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the boundaries of
the offer under the right of first refusal. As to the remedy to enforce
Mayfair's right, the Court disagrees to a certain extent with the
concluding part of the dissenting opinion of Justice Vitug. The doctrine
enunciated in Ang Yu Asuncion vs. Court of Appeals should be modified,
if not amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale between Equatorial and
Carmelo is characterized by bad faith, since it was knowingly entered
into in violation of the rights of and to the prejudice of Mayfair. In fact,
as correctly observed by the Court of Appeals, Equatorial admitted that
its lawyers had studied the contract of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that
would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if
the fraudulent sale is first set aside or rescinded. All of these matters are
now before us and so there should be no piecemeal determination of
this case and leave festering sores to deteriorate into endless litigation.
The facts of the case and considerations of justice and equity require
that we order rescission here and now. Rescission is a relief allowed for
the protection of one of the contracting parties and even third persons
from all injury and damage the contract may cause or to protect some
incompatible and preferred right by the contract. 26 The sale of the
subject real property by Carmelo to Equatorial should now be rescinded
considering that Mayfair, which had substantial interest over the subject
property, was prejudiced by the sale of the subject property to Equatorial
without Carmelo conferring to Mayfair every opportunity to negotiate
within the 30-day stipulated period. 27
This Court has always been against multiplicity of suits where all coming to the attention of Mayfair. All the circumstances point to a
remedies according to the facts and the law can be included. Since calculated and contrived plan of non-compliance with the agreement of
Carmelo sold the property for P11,300,000.00 to Equatorial, the price at first refusal.
which Mayfair could have purchased the property is, therefore, fixed. It
On the part of Equatorial, it cannot be a buyer in good faith because it
can neither be more nor less. There is no dispute over it. The damages
bought the property with notice and full knowledge that Mayfair had a
which Mayfair suffered are in terms of actual injury and lost
right to or interest in the property superior to its own. Carmelo and
opportunities. The fairest solution would be to allow Mayfair to exercise
Equatorial took unconscientious advantage of Mayfair.
its right of first refusal at the price which it was entitled to accept or
reject which is P11,300,000.00. This is clear from the records. Neither may Carmelo and Equatorial avail of considerations based on
equity which might warrant the grant of interests. The vendor received as
To follow an alternative solution that Carmelo and Mayfair may resume
payment from the vendee what, at the time, was a full and fair price for
negotiations for the sale to the latter of the disputed property would be
the property. It has used the P11,300,000.00 all these years earning
unjust and unkind to Mayfair because it is once more compelled to
income or interest from the amount. Equatorial, on the other hand, has
litigate to enforce its right. It is not proper to give it an empty or vacuous
received rents and otherwise profited from the use of the property
victory in this case. From the viewpoint of Carmelo, it is like asking a fish
turned over to it by Carmelo. In fact, during all the years that this
if it would accept the choice of being thrown back into the river. Why
controversy was being litigated, Mayfair paid rentals regularly to the
should Carmelo be rewarded for and allowed to profit from, its
buyer who had an inferior right to purchase the property. Mayfair is
wrongdoing? Prices of real estate have skyrocketed. After having sold
under no obligation to pay any interests arising from this judgment to
the property for P11,300,000.00, why should it be given another chance
either Carmelo or Equatorial.
to sell it at an increased price?
WHEREFORE, the petition for review of the decision of the Court of
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
stated that there was nothing to execute because a contract over the
DENIED. The Deed of Absolute Sale between petitioners Equatorial
right of first refusal belongs to a class of preparatory juridical relations
Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby
governed not by the law on contracts but by the codal provisions
deemed rescinded; petitioner Carmelo & Bauermann is ordered to return
on human relations. This may apply here if the contract is limited to the
to petitioner Equatorial Realty Development the purchase price. The
buying and selling of the real property. However, the obligation of
latter is directed to execute the deeds and documents necessary to
Carmelo to first offer the property to Mayfair is embodied in a contract.
return ownership to Carmelo and Bauermann of the disputed lots.
It is Paragraph 8 on the right of first refusal which created the
Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy
obligation. It should be enforced according to the law on contracts instead
the aforesaid lots for P11,300,000.00.
of the panoramic and indefinite rule on human relations. The latter
remedy encourages multiplicity of suits. There is something to execute SO ORDERED.
and that is for Carmelo to comply with its obligation to the property
under the right of the first refusal according to the terms at which they
should have been offered then to Mayfair, at the price when that offer
should have been made. Also, Mayfair has to accept the offer. This
juridical relation is not amorphous nor is it merely preparatory.
Paragraphs 8 of the two leases can be executed according to their terms.
On the question of interest payments on the principal amount of
P11,300,000.00, it must be borne in mind that both Carmelo and
Equatorial acted in bad faith. Carmelo knowingly and deliberately broke
a contract entered into with Mayfair. It sold the property to Equatorial
with purpose and intend to withhold any notice or knowledge of the sale
G.R. No. L-28367 November 29, 1971
PEDRO PAMINTUAN and RUPERTO D. TAN, petitioners,
vs.
COURT OF APPEALS, LORENTE O. YARISANTOS and LOURDES O.
YARISANTOS respondents.
Rudolfo L. Gonzales for petitioners.
Cesar R. Canonizado for private respondents.
FERNANDO, J.:
The question before respondent Court of Appeals, as before us, is the right of
private respondents, the lessors Llorente O. Yarisantos and Lourdes O. Yarisantos,
to rescind a contract of lease for nonpayment of rentals on time. The facts as
found by respondent Court left no doubt that there was indeed such a failure to
do so on the part of petitioners, Ruperto Tan and Pedro Pamintuan, respectively
the lessees and sublessees Article 1659 of the Civil Code, which grants the right
to the lessor in the event of the failure on the part of the lessee to comply with
his obligations, is thus applicable. 1 So it was held by respondent Court of
Appeals. We cannot do otherwise. We affirm.
The complaint for rescission was filed by private respondents who succeeded to
the rights of the previous lessor, Patrocinio A. Vda. de Gaerlan from which the
disputed two lots situated in Sampaloc, Manila were, purchased. The lease
contract in favor of private petitioners Tan and Pamintuan provided for an agreed
monthly rental of P15.00 payable promptly at the end of every month for each lot
or P30.00 for the two, the lease entered into on October 10, 1951 to expire at the
discretion of the lessee after twenty years. There was another provision that
failure on the part of the lessee to pay the rental for six consecutive months
would automatically annul the contract. 2 The complaint for rescission filed by
private respondents as plaintiffs against petitioners as defendants on November
12, 1959 alleged that with respect to the first lot, defendant, now petitioner,
Ruperto Tan, was in arrears for the period of twelve months and, with respect to
the second lot, for a period of eight months. The judgment was in favor of private
respondents as plaintiffs, the contract of lease being rescinded by virtue of the
above Civil Code provision.
An appeal was then taken to respondent Court of Appeals. It considered as "the
one and only issue" whether defendants, now petitioners, had violated the
provision in the contract of lease as to the monthly rental being promptly paid at
the end of every month as claimed by plaintiffs, now private respondents. If they
had not vioIated said provision, as claimed by them in their answer to said
complaint, then private respondents have no right to ask for the rescission or
annulment of the said contract of lease. 3
This is how respondent Court resolved the issue: "While claiming to have
committed no such violations, [petitioners] nevertheless admit that ['they] in their
pleadings nor at any time during the trial, never claimed to have offered to pay
the rental at the end of each month beginning the month of October, 1958. On
the contrary, they impliedly admitted in their pleadings and they do now formally
admit here, no such monthly payments were ever made' ... . With [their] above
admission that 'no such monthly payments were ever made' by them to [private
respondents] it stands clear that they violated the aforequoted provision of
paragraph 2 of the contract of lease 'That the agreed monthly rental of [Fifteen
Pesos] (P15.00), Philippine Currency, payable promptly at the end of every month
for each lot or Thirty Pesos (P30.00), Philippine Currency for the two lots, shall be
maintained, ... .' [So] clearly, said violation of lessees' ... obligation 'to pay the
price of the lease according to the terms stipulated' (Article 1657 of the New Civil
Code), entitles [private respondents] to rescind said contract of lease under
Article 1659 of the same Code providing that 'If the lessor or the lessee should
not comply with the obligations set forth in articles 1654 and 1657, the aggrieved
party may ask for the rescission of the, contract and indemnification for damages
or only the latter, allowing the contract to remain in force.' " 4
From the decision of respondent Court of Appeals of October 30, 1967 affirming
the judgment of the lower court, a petition for review was filed with this Tribunal.
A careful perusal of the records of the case and the legal grounds in support of
this petition yields, the conclusion that no error of law could be imputed to
respondent Court.
1. Much is made in the third error assigned of private respondents being bereft
of the right to ask for rescission in view of their refusal to recognize the existence
of the lease contract. Such an argument was raised and rejected by respondent
Court of Appeals in these words: "Of course, we do not overlook' ... that the
defense of the appellants (against such failure to pay every months) is that the
appellees as early as May, 1958, refused to recognize the existence and/or
binding effect of the lease contract, Exh. A and the appellees maintained this
judicial stand until final decision was had in the ejectment case, Civil Case No.
63700, with the Municipal Court of Manila in December, 1959 or a month after
they filed their complaint in these proceedings.' ... Refusal on plaintiffs' part to
recognize the existence and/or binding effect of the said lease contract Exhibit A
is only like saying that the latter would not accept payment of rentals thereunder.
In such a situation, defendants' remedy is not to violate their own obligation
under Exhibit A but to make tender of payment of such rentals and, if refused, to
make consignation thereof in court. ... .'" 5
Nor is this all that was said by respondent Court Appeals on the matter. Thus: court presided by the Honorable Judge Conrado Vasquez, and respondent Court
"Defendants, however take exception to the said remedy by rescission, of Appeals did. To impute what was done by them as error would be to disregard
contending that there is paragraph 3 of the said lease contract providing 'That what the law so plainly commands.
failure on the part of the [lessee] to pay rentals for six (6) consecutive months
An excerpt from an opinion in Malicsi v. Carpizo, 8 penned by Justice Barrera, is
shall automatically annul this contract.' Defendants' argument at page 20 of their
relevant. Thus: "And, Article 1659 of the same Code expressly provides, among
brief runs thus: 'What good is there to grant the lessees a six-month period of
others, that if the lessee should not comply with his obligation of paying the price
grace if the lessor can rescind the lease contract anyway, with but a month's
(rental of the lease according to the terms stipulated), 'the aggrieved party may
failure pay the same rentals?' The aforequoted argument was neatly answered by
ask for the rescission of the contract and indemnification for damages, or only
the lower court as follows: 'The right to rescind the contract pursuant to Article
the latter, allowing the contract to remain in force'. In the instant case, appellant
1659 of the Code is different from the automatic annulment of same contract in
failed and refused to pay the monthly stipulated rental of the property subject
accordance with the provision of paragraph 3 thereof. They arise from different
matter of the aforementioned lease contract for the months of January and
cases and are based on different grounds. In making deposit rentals at six-month
February, 1958. Consequently, appellee had the right under said provision of the
intervals, the defendants prevent automatic cancellation of the contract but did
Civil Code to bring, as he did, the present action for rescission of said Contract of
not depress the owner to ask for the rescission of the contract failure of the
Lease, and the trial court correctly declared the rescission thereof. Appellant
lessee to pay the stipulated rentals promptly at the end of every month. It was
claims that she had not defaulted in the payment of said rental as no demand to
never contemplated that the rentals were to be payable every six months,
make payment was made on her by appellee. This is a question of fact which can
otherwise, there would have been no necessity for the stipulation in paragraph 2
not be raised here and the finding of the lower court to this effect is binding on
of the contract. Indeed, the intention that the lessee should pay rentals monthly
us.'" 9
is emphasized by the provision that such rentals should be paid 'promptly at the
end of every month' ... ." 6 That is all that need be said as to this petition for the review of the decision of
respondent Court of Appeals complained of, the last error assigned being
2. It was likewise assigned as the second error that in view of a previous favorable
obviously untenable, as no recovery would lie against private respondents and in
decision by the Court of First Instance of Manila of a consignation case filed by
favor of petitioners on their counter-claim.
private petitioner Tan against private respondents to compel the latter to accept
the rentals at the rate of P15.00 monthly a well as another decision dismissing an WHEREFORE, the decision of respondent Court of October 30, 1967 is affirmed.
ejectment suit by private respondents against such petitioner, the principle of res Costs against petitioners.
adjudicata would apply. This point was, raised and decided adversely against
petitioner by respondent Court of Appeals thus: "Another contention of
defendants that the consignation and ejectment cases elsewhere referred to
constitute res adjudicata or are a bar to the present action is also without merit
because the subject-matter and causes of action in the said cases are distinct
from those in the instant case." 7 Such a defense was thus unavailing. It did not
suffice to preclude the operation of Article 1659. An independent and separate
cause of action had, as correctly stated by respondent Court, already come into
being.
3. It would thus appear clear that the first error assigned to the effect that the
contract of lease could not be rescinded is devoid of merit. Article 1659 speaks in
categorical language. Private respondents, as the aggrieved parties, had the right
to ask for rescission, there being a failure on the part of petitioners to comply
with their obligations as lessee and sublessee respectively. With the lessors
having decided to avail themselves of such a right under the law, no court can
validly stand in the way of the enforcement thereof. That was what the lower
G.R. No. L-68021 February 20, 1989
HEIRS OF FAUSTA DIMACULANGAN, petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and FELIMON
UY, respondents.
Jerry D. Baares for petitioners.
Luis T. Tuason, Jr. for private respondent.
FERNAN, C.J.:
This is a petition for review on certiorari of the July 2, 1984 decision of the Third
Special Cases Division, Intermediate Appellate Court, in AC-G.R. SP. No. 01230,
entitled "Heirs of Fausta Dimaculangan v. Hon. Baltazar R. Dizon, et al." dismissing for
lack of merit the petition for review of the Orders dated June 6, 1983 and July 13,
1983, issued by the Regional Trial Court of Pasay City, Branch CXIII in Civil Case No.
8865-P which in turn affirmed on appeal the October 16, 1980 decision of Hon.
Mariano A. Lacsamana, then presiding judge, Pasay City Court, Branch 11, in Civil Case
No. 13591, entitled "Felimon Uy v. Fausta Dimaculangan, for Ejectment".
Fausta Dimaculangan and her children, petitioners herein, occupy by lease an
apartment located at No. 2490 E. Zamora St., Pasay City, at a monthly rental of
P260.00. They have been living in said premises since 1961. To augment its income,
the family maintains therein a sari-sari store and bakes hot pan de sal to sell to the
general public. The capital investment involved is claimed to be P3,200.00 only.
On July 5, 1978, private respondent Felimon Uy sent Fausta Dimaculangan a
registered letter informing her that the property which she has been occupying has
been sold to him and should she desire to continue occupying the same, she should
sign a contract of lease for a period of two (2) years at a monthly rental of P1,500.00.
Receiving no reply to his letter, the private respondent sent a second one, demanding
payment of P750.00 covering unpaid rentals for the months of August, September
and October, 1978 but still he received no answer to his-demand. Thus, he filed with
the City Court of Pasay City a complaint for ejectment 1 praying, among others, that
said court render judgment ordering Fausta Dimaculangan and all persons claiming
rights under her to vacate the leased premises.
In her answer with compulsory counterclaim, 2 Fausta Dimaculangan admitted that
she received plaintiff's letter of July 5, 1978 but claimed that she sent plaintiff a reply
which was however returned undelivered because plaintiff distorted his address. She
denied having been in default in her monthly rentals to the plaintiff, and alleged that
she has never been in default during the entire period of her occupancy of the
premises since 1961 up to the present. In fact she tried to pay the plaintiff who did
not want to collect the monthly rentals, even in the form of money orders which were
however, returned unclaimed. She countered that the filing of the complaint was just
a scheme to compel her to agree to the capricious and whimsical demand for an
unconscionable increase in the monthly rental from P250.00 to P1,500.00, in clear
violation of the provisions of P.D. No. 20, as amended. She further alleged that when
she received the plaintiff s letter of October 3, 1978, she caused the payment of the
rentals for August, September and October, 1978. Defendant Fausta Dimaculangan
prayed to the trial court that the complaint be dismissed and a favorable judgment be
rendered in her favor.
Pending trial of the case, Fausta Dimaculangan died. She was substituted by her
children as defendants.
After trial, the presiding judge of the City Court of Pasay found that the premises in
question is partly residential and partly commercial; that defendant has no arrears and
that the latter replied to plaintiff s demand letter and paid by way of money orders
her rentals which were however, returned unclaimed.
On October 16, 1980, the aforementioned court rendered a decision increasing the
monthly rentals and fixing a definite period for the term of the lease, the dispositive
portion of which reads:
WHEREFORE, AND IN VIEW OF THE FOREGOING, the defendant is
hereby ordered to pay the plaintiff the amount of P500.00 per
month, as monthly rental from August 1978 to August 1980;
defendant shall be granted a Contract of Lease for two (2) years
from August 1980 to August 1982 of which the defendant shall pay
the plaintiff a monthly rental of P750.00; the party-litigants are
ordered to pay the amount of P1,500.00 to their respective counsels
by way of attorney's fees; and the party-litigates (sic) shall equally
pay the costs of suit.
SO ORDERED. 3
On Appeal, the Regional Trial Court, Branch CXIII, Pasay City, affirmed the aforesaid
decision of the City Court and denied petitioner's motion for reconsideration. 4
On review by certiorari, the Intermediate Appellate Court, now Court of Appeals,
dismissed the petition for lack of merit. 5
Hence, the instant petition for review, raising the following issues for the resolution of
this Court:
1. May the trial court in a complaint for ejectment increase the
rental agreed upon by the parties, and in the instant case, from the
agreed P250.00 to P500.00, and then to P750.00, without violating
the provisions of existing laws;
2. May the trial court alter the agreement of the parties by
shortening the period of the lease from an indefinite period within
the purview of Presidential Decree No. 20, the law in force at the
 time, and of the amendatory Batas Pambansa Blg. 25, to a fixed two Presidential Decree No. 20 made no distinction between oral and written lease
(2) years; contracts and no distinction may, therefore, be inferred. Consequently, at the time of
filing her action the private respondent had a clear and indubitable right to eject the
3. In two dismissing the petition for review, and in effect, affirming
petitioners, the period of the latter's lease expiring at the end of every monthly period
the judgments of the Metropolitan Trial Court, and the Regional
... 10 The Court further pointed out that the Rent Control Law now in force, Batas
Trial Court, has the Honorable Intermediate Appellate Court
Pambansa Blg. 877, has erased the distinction between oral and written leases insofar
committed a grave abuse of discretion amounting to lack or
as expiration of the lease period as a ground for judicial ejectment in leases covered
absence of jurisdiction, or at least a grave reversible error of a
by said law, is concerned. 11
question of law, and/or of fact and law, correctible by the instant
petition ? 6 In view of the foregoing, there appears to be no necessity to discuss the other issues
in this case; more specifically whether or not the trial court may increase the rental
It has been established that petitioners have been occupying the leased premises on a
and/or alter the period of the lease from an indefinite period to a definite period;
verbal contract since 1961 at a monthly rent of P250.00, and that although no fixed
both issues having become moot and academic.
period for the duration of the lease has been agreed upon the original lessor and
lessee, the rentals were paid monthly. Citing the case of Mabalot v. Madela Jr. 12 the Court of Appeals ruled that the petition
has been rendered moot and academic by the death of the lessee Fausta
Under the circumstances, there appears to be no dispute that subject contract of lease
Dimaculangan, which terminated the lease in her favor. It will be noted however, that
is covered by P.D. 20 and later by B.P. No. 25.
in the aforecited case, those seeking to continue in possession of the premises were
The decisive issue therefore, in this case, is whether or not subject contract of lease is not the heirs of the lessee but merely members of the lessee's household, which does
for an indefinite period, for the purpose of applying Presidential Decree No. 20. not apply in the case at bar, where petitioners are the lessee's children. Authorities are
of the view that lease is not essentially personal in character, thus the right is
The pertinent provision of P.D. No. 20 reads:
transmissible to the heirs. 13
SEC. 4. Except when the lease is for a definite period, the
At any rate, the period fixed by respondent Judge which appears acceptable to the
provisions of paragraph (1) of Article 1673 of the Civil Code of the
lessor has expired in 1982 and has therefore become moot and academic, aside from
Philippines insofar as they refer to dwelling unit or land on which
the fact that with private respondent's conformity, it has become the latter's term
another's dwelling is located shall be suspended until otherwise
which is well within his authority; that is, to terminate the contract and enter into a
provided; but other provisions of the Civil Code and the Rules of
new one.
Court of the Philippines on lease contracts, insofar as they are not in
conflict with the provisions of this act, shall apply. WHEREFORE, the petition is hereby dismissed for lack of merit, with costs against the
petitioner.
To exempt the lease from the application of P.D. No. 20, it must be one with a definite
period. SO ORDERED.

It will be recalled that the agreement between the original lessor and lessee was
unwritten, so that it is difficult to determine with certainty the terms and conditions
agreed upon.

Be that as it may, it is undisputed that the rentals are paid monthly. This Court had
already ruled that leases are deemed on a "month-to-month basis", if rentals
therefore are paid monthly. 7

Similarly, it is well settled that a lease contract "on a month-to month basis" provides
for a definite period and may be terminated at the end of any month. 8 By express
exception of P.D. No. 20, judicial ejectment lies when the lease is for a definite period
or when the fixed or definite period agreed upon has expired. 9

Even more recently, this Court clarified that "(I)n exempting from suspension
ejectments on the ground of the expiration of the lease period, Section 4 of
G.R. No. 95146 May 6, 1991
SPOUSES ROBERTO E. FERMIN and MAY LINDA FERRAREN, petitioners,
vs.
HON. COURT OF APPEALS and SPOUSES MELITON P. ALPAS, JR. AND LUCY
D. ALPAS, respondents.
Puno, Agag & Dumlao Associates for petitioners.
Ismael J. Andres for private respondents.
GANCAYCO, J.:
The renewal of a contract of lease is the issue addressed by this petition.
The facts as found by the trial court are not disputed.
1. On March 15, 1976, spouses Roberto E. Fermin and Maylinda Ferraren
(herein plaintiffs) and spouses Meliton P. Alpas, Jr., and Lucy D. Alpas
(herein defendants) as lessors and lessees, respectively, entered into a
contract of lease covering the parcel of land (375 square meters) owned
by the spouses Fermin at No. 157 Pinatubo Street, Mandaluyong, Metro
Manila, for a term of ten (10) years, renewable for another term of ten
(10) years upon mutual agreement of the parties. Rental was fixed at
P5,000.00 yearly, to be increased by 10% at the end of each five year
period. (Exh. "A").
The pertinent provisions of the contract of lease which lie at the core of
this controversy are quoted hereunder:
1) The term of the lease shall be ten (10) years counted from the
date the document is registered and annotated on the Original
Certificate of Title No. 395344 and the lease shall be renewable
for another term of ten (10) years upon mutual agreement of
the parties.
2) The rental for the property leased hereunder shall be at the
rate of FIVE THOUSAND PESOS per annum; provided, that the
rental shall be increased by ten (10) percent at the end of each
five (5) year period, counted from the effectivity of this lease
agreement.
3) The parties hereby agree that during the renewal period after
the ten (10) year term, the LESSEE may, at its own option and
discretion terminate the lease, after giving the LESSORS a
previous written notice in advance, at least one hundred eighty
(180) days from the effectivity date of termination.
4) Upon termination of the lease agreement occurring after the
first ten (10) years, all improvements which are permanent in
nature that may have been constructed by the LESSEE on the
leased properties, shall become properties of the LESSORS, their
heirs or assigns, without any further obligation to reimburse the
LESSEES. That the LESSEE has the priority to purchase the
property if the LESSOR decides to sell said property.
2. Defendants built on the leased premises a warehouse structure of
strong materials worth not less than P200,000.00.
3. While in the United States of America, in October, 1980, Roberto
Fermin, with marital consent from Maylinda Ferraren, executed a General
Power of Attorney naming and constituting his mother, Eduviges Espinas
vda de Martin as his attorney-in-fact, who was tasked, among other
things, to exercise general control and supervision over his property in
the Philippines.
4. On November 14, 1985 Eduviges E. Fermin for herself and as attorney-
in-fact of her other children, including Roberto E. Fermin (plaintiff in this
case), as principal, entered into a Property Administration Agreement
with AGRA & Co., Inc., represented by its president, Rose B. Reyes, as
agent, naming and constituting and appointing the latter to be their true
and lawful attorney-in-fact (Exh. "5".).
5. Before the expiration of the ten (10) year period, defendants sent
plaintiffs representative a document entitled 'Lease of Real
Property' already signed by them. It was never signed by plaintiffs up to
this day. (Exh. "2").
6. On May 31, 1986, AGRA & Co., Inc., as collection agent of the plaintiffs
collected payment from the defendants the sum of One Thousand Eight
Hundred Pesos (P1,800.00) as partial payment for the annual rental
covering March 15, 1986 to March 15, 1987 (Exhibits "3" and "4").
7. In a letter dated 6 February 1987, AGRA & Co., Inc., informed Mr. Alpas
that said company would no longer act in any representative capacity for
the Fermins and advising to refer all matters to the Fermin's attorney-in-
fact, Ms. Eduviges E. Fermin (Exhibit "6").
8. Key Management Corporation in the letter dated 04 March 1987 and
09 March 1987 (Exhibits "7" and "8"), informed defendants that said
 company was appointed attorney-in-fact for the administration of the
leased premises and to collect rentals due thereon.
9. Key Management Corp., in another letter (Exh. "9") dated 12 March
1987 advised Mr. Alpas that they were unilaterally terminating the lease
effective 18 April 1987.
10. Mr. Alpas, through his lawyer answered Key Management Corp., in a
letter dated March 17, 1987, advising the latter that the lease agreement
had already been renewed for another term of ten (10) years from 16
March 1986 (Exh. "10"), tendered payment of the sum of Ten Thousand
Six Hundred Eighty-Two & 50/100 Pesos (P10,682.50) covering balance
of the annual rental from March 16, 1986 to March 15, 1988, including
12% interest per annum on rental in arrears.
11. On April 2, 1987, Key Management Corp., received the letter together
with Mr. Alpas' Statement of Account, Check Vouchers and Check No.
188395 for P10,682.50 (Exhibit "11", "12", "13" and "14", respectively).
12. In a letter dated 20 April 1, 1987, (Exh. "15") Key Management
Corporation acknowledged receipt of P10,682.50, but with notice of its
application.
13. In a letter dated 08 May 1987 Atty. Jose J. Benemerito of Key
Management Corporation reiterated the demand to pay and to vacate.
14. Defendants expressed strong exception and objection to the
aforesaid lateral application of payment of their remittance of P10,682.50
by Key Management Corporation in its letter dated May 14, 1987 (Exhibit
"16", "16-A" and "16-B").
15. In another letter dated May 14, 1987 addressed to Atty. Jose J.
Benemerito, Atty. Ismael Andres, defendants' counsel, reiterated his
stand on the matter of payment made by the defendants of the
Pl0,682.50 as rental up to March 15, 1988, including 12% interest per
annum on rental in arrears and that the contract of lease between the
plaintiff and defendants had already been renewed for another ten (10)
years from 15 March 1986 (Exhibit "8", "18-A", and "18-B"). 1
On August 10, 1987, petitioners filed a complaint for ejectment in the
Metropolitan Trial Court of Mandaluyong, Metro Manila against private
respondents for refusal of the latter to agree to an increased rental of P2,000.00
month for renewal of the lease. On April 14, 1988, the trial court rendered a
decision dismissing the complaint with costs de officio.
Petitioners appealed to the Regional Trial Court (RTC) of Pasig, Metro Manila,
wherein on October 23, 1989, a decision was promulgated setting aside the
appealed decision, the dispositive part of which reads
WHEREFORE, finding the instant petition to be well-taken, the Decision
dated April 14, 1989, is set aside and a new one is entered, to wit:
Defendants/appellees are ordered to vacate the premises and to pay the
rentals for its use at P5,500.00 the period from March 15, 1986 to March
17, 1987 and the amount of P2,000.00 for every month thereafter until
defendants/appellees shall have rendered the premises to
plaintiffs/appellants.
No pronouncement as to costs.
SO ORDERED. 2
A motion for reconsideration filed by private respondents was denied in an order
dated February 21, 1990. Private respondents then filed a petition for review with
the Court of Appeals. On August 31, 1990, the appellate court rendered a
decision setting aside the decision of the RTC and reinstating the decision
rendered by the inferior court.
Hence, this petition for review where the issues raised are as follows
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
SETTING ASIDE THE DECISION OF THE REGIONAL TRIAL COURT DATED
OCTOBER 23, 1989.
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
GRIEVIOUSLY ERRED IN REINSTATING IN TOTO THE DECISION OF THE
TRIAL COURT DATED APRIL 14, 1989 WHICH ORDERED THE DISMISSAL
OF THE COMPLAINT FOR BEING PREMATURE AND FOR LACK OF CAUSE
OF ACTION.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE PERIOD OF THE IMPLIED NEW LEASE, ASSUMING
ARGUENDO THAT ONE WAS CREATED, IS THE SAME AS THE ORIGINAL
TEN (10) YEAR PERIOD AS PROVIDED IN THE CONTRACT OF LEASE (EXH.
"A" OR "l") INSTEAD OF ON A YEAR-TO-YEAR BASIS AS PROVIDED IN
ART. 1670 IN RELATION TO ARTICLE 1687, NEW CIVIL COVE. 3
Nothing is more settled than the rule that the terms of a written contract are
binding on the parties thereto.1wphi1 In the interpretation of the provisions of a
written contract, the courts should follow the literal meaning of the stipulation.
Otherwise, the evident intention of the parties must prevail. 4
A reading of the lease agreement shows that it is for a term of ten (10) years and
that the lease shall be renewable for another term of 10 years upon mutual
agreement of the parties.5 The agreed rental is P5,000.00 per annum with the
escalation clause that the rental shall be increased by 10% at the end of each
five-year period counted from the effectivity of the lease agreement. 6 After the
10-year term and during the renewal period, the lessee may, at his/their own
option and discretion, terminate the lease, after giving the lessors a previous
written notice in advance, at least 180 days from the effective date of
termination. 7 Upon termination of the lease after the first 10 years, all
improvements which are permanent in nature that may have been constructed by
the lessee on the leased properties, shall become properties of the lessors, their
heirs or assigns, without any further obligation to reimburse the lessees. The
lessee has the priority to purchase the property if the lessors decide to sell said
property. 8
Before the expiration of the 10 year term of the lease, private respondents
manifested their desire to renew the lease when they sent petitioners'
representative a prepared lease agreement already signed by them but it was
never signed nor returned by petitioners.
Nevertheless, on May 31, 1986, AGRA & Co., Inc., as collection agent of
petitioners collected from private respondents the sum of P 1,800.00 as partial
payment for the annual rental covering March 15, 1986 (the expiry date of the
first term of 10 years) to March 15, 1987. 9 Key Management Corporation which
was appointed by petitioners as attorney-in-fact for the administration of the
leased premises, advised private respondent Meliton Alpas in a letter dated
March 12, 1987 that the lease agreement was terminated effective April 18, 1987.
Said respondent, through counsel, replied in a letter dated March 17, 1987
addressed to Key Management Corporation that the lease agreement had
already been renewed for another term of ten (10) years from March 16, 1986
and tendered payment of the sum of P10,682.00 covering the balance of the
annual rental from March 16, 1986 to March 15, 1988 including 12% interest per
annum on rentals in arrears. 10 In a letter dated April 20, 1987, Key Management
Corporation acknowledged receipt of P10,682.50, but with notice of its
application to accrued rentals at P2,000.00 a month leaving an outstanding
balance of P13,900.00 as of April 15,1987. 11
In a letter of May 8, 1987, Atty. Jose J. Benemerito of Key Management
Corporation reiterated the demand that private respondents pay the accrued
rentals and vacate the premises. On May 14,1987, private respondents objected
in writing to the aforesaid application of payment of their remittance of
P10,682.50 by Key Management Corporation. 12 In another letter of same date
addressed to one Atty. Benemerito private respondents reiterated said objection
and stated that the lease had already been renewed for another 10 years.
From the foregoing set of facts, it cannot be said that the lease agreement had
been effectively renewed for another 10 years.1wphi1 The stipulation of the
parties is clear in that such a renewal is subject to the mutual agreement of the
parties. While there is no question that private respondents expressed their desire
to renew the lease by another 10 years at the rate of the rental stipulated in the
lease agreement, apparently petitioners would be willing to renew said lease if
the rentals are increased to P2,000.00 monthly. Obviously, there was no meeting
of the minds as to the rate of the rental. As there was no agreement reached,
then the term of the lease may not be considered to have been renewed for
another 10 years.
However, since after the expiration of the lease agreement, the private
respondents continued to occupy the premises for more than 15 days with the
acquiescence of petitioners, then it is understood that there is an implied new
lease, not for the period of the original contract, but from year to year. Article
1670 of the Civil Code so provides for this situation.
Art. 1670. If at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the
lessor, and unless a notice to the contrary by either party has previously
been given, it is understood that there is an implied new lease, not for
the period of the original contract, but for the time established in articles
1682 and 1687. The other terms of the original contract shall be revived.
There is thus an implied renewal of the lease from year to year. The extension of
the lease for one year from March 16, 1986 to March 15, 1987 shall be at the
agreed monthly rental in the contract of P6,150.00 considering the escalation
clause of 10% after every five (5) years. However, from March 16, 1987, the rate of
monthly rental should be P2,000.00 as demanded by petitioners until private
respondents vacate the premises.
WHEREFORE, the petition is hereby GRANTED. The questioned decision of the
Court of Appeals dated August 31, 1990 is REVERSED and SET ASIDE, and the
decision of the Regional Trial Court dated October 23, 1989 is hereby
REINSTATED and AFFIRMED with the above modification as to rental, with costs
against private respondents.
SO ORDERED.