Heirs of Dalisay v. Court of Appeals
REITERATIONFacts
The Antecedents: On March 15, 1971, Dr. Amando M. Dalisay (lessor) and Fortunato M. Gupit (lessee) executed a 15-year lease contract for a parcel of land, extendible for another five years. The contract stipulated that the lessee would construct a building on the land, which would become the lessor's property upon lease expiration. The lessee constructed the 'FMSG Building' and paid a monthly rental of P1,500.00. After Dr. Dalisay's death, rentals were paid to his heirs. Procedural History: Dr. Dalisay's administratrix notified the lessee of her intention not to renew the lease after its expiration on October 31, 1986. Despite the lessee's offer to extend the lease for another five years at a higher rental (P4,800.00), the administratrix stood firm on not extending and informed the lessee that the heirs would take possession and collect rentals from tenants starting November 1, 1986. The lessee's rental payments were refused, leading him to consign the amounts in court. The lessee filed a complaint for specific performance and damages against the heirs. The Regional Trial Court (RTC) dismissed the complaint, holding that the lease extension required mutual consent and ordered the lessee to render an accounting of deposits and rentals collected, pay damages, and attorney's fees. The Petition: The Court of Appeals (CA) reversed the RTC's decision, relying on Koh vs. Ongsiaco and Cruz vs. Alberto, and declared that the lessor could not unilaterally terminate the lease where it was made extendible upon mutual agreement. The CA directed the RTC to receive evidence on the just rental for the extended period and the rentals collected by the heirs from the building tenants, ordering the heirs to deliver such collected rentals to the lessee. The heirs, as petitioners, elevated the case to the Supreme Court.
Issue(s)
Whether the lease contract, specifically paragraph 7, allows for a unilateral extension of the lease period at the option of the lessee. Whether the rulings in Koh vs. Ongsiaco and Cruz vs. Alberto are controlling in the interpretation of the lease extension clause.
Ruling
The Supreme Court reversed and set aside the decision and resolution of the Court of Appeals and reinstated the judgment of the Regional Trial Court. The Court held that the lease could only be extended upon mutual agreement of the parties.
Ratio Decidendi
On the issue of unilateral extension of the lease: The Court held that paragraph 7 of the lease contract, which states that "Before the end of the 15th years, the parties of this contract may extend the lease for another five (5) years after the 15-year lease under such terms and conditions that they may mutual agree upon, with due consideration to any changes in the value of the peso," clearly requires mutual agreement for any extension. The phrase "under such terms and conditions that they may mutual agree upon" unequivocally indicates that the extension is not a unilateral right but a matter of mutual consent. Therefore, the private respondent, as lessee, cannot unilaterally extend the lease without the consent of the petitioner-lessors. On the applicability of Koh vs. Ongsiaco and Cruz vs. Alberto: The Court found that the rulings in Koh and Cruz, which interpreted the word "extendible" as a promise to extend obligating the lessor, were no longer controlling. These cases were explicitly overruled in Fernandez vs. Hon. Court of Appeals, et al.. The Fernandez case clarified that "extendible" or "renewable" alone are non-committal and do not vest a unilateral option. The Court emphasized that the intention of the parties must be ascertained from all words used in the contract, in context, not just a single word standing alone. The Fernandez ruling established that a stipulation for extension subject to mutual agreement means the lease can only be extended upon mutual consent, not at the sole option of either party. The Court reasoned that in a reciprocal contract like a lease, the period is deemed for the benefit of both parties, and absent language to the contrary, a presumption that the term benefits only the lessee is unreasonable, especially in times of economic change. Therefore, the CA erred in applying the overruled doctrines of Koh and Cruz.
Main Doctrine
A stipulation in a lease contract providing for the extension of the lease period, with terms and conditions subject to mutual agreement, requires the consent of both parties for such extension and cannot be unilaterally exercised by either the lessor or the lessee.