Laidziii: Case Digest in Oblicon A1

G.R. No. 87047

31, 1990

Different Kinds of Obligations: Pure and Conditional Obligations #2

October

FRANCISCO LAO LIM vs. CA and BENITO

VILLAVICENCIO DY
THE CASE:
CA having affirmed in toto on June 30, 1988
in CA-G.R. SP No. 13925, the decision of
the RTC of Manila, Branch XLVI in Civil Case
No. 87-42719, entitled "Francisco Lao Lim
vs. Benito Villavicencio Dy," petitioner
seeks the reversal of such affirmance in the
instant petition.
FACTS:
The records show that Villavicencio entered
into a contract of lease with petitioner for a
period of three (3) years, that is, from 1976
to 1979. After the stipulated term expired,
Villavicencio
refused
to
vacate
the
premises, hence, petitioner filed an
ejectment suit against the former in the
City Court of Manila, docketed therein as
Civil Case No. 051063-CV.
The case was terminated by a judicially
approved compromise agreement of the
parties providing in part:
3. That the term of the lease shall be
renewed every 3years retroacting from
October 1979 to October 1982; after which
the abovenamed rental shall be raised
automatically by 20% every three years for
as long as defendant needed the premises
and can meet and pay the said increases,
the defendant to give notice of his intent to
renew sixty (60) days before the expiration
of the term;
By reason of said compromise agreement
the lease continued from 1979 to 1982,
then from 1982 to 1985. On April 17, 1985,
petitioner advised Villavicencio that he
would no longer renew the contract
effective October, 1985.
However, on August 5, 1985, Villavicencio
informed petitioner in writing of his
intention to renew the contract of lease for
another term, commencing November,
1985 to October, 1988. In reply to said
letter, petitioner advised Villavicencio that
he did not agree to a renewal of the lease

contract upon its expiration in October,

1985.

On January 15, 1986, because of

Villavicencio's refusal to vacate the
premises,
petitioner
filed
another
ejectment suit, this time with the
Metropolitan Trial Court of Manila. In its
decision of September 24, 1987, said court
dismissed the complaint on the grounds
that:
(1) the lease contract has not expired,
being a continuous one the period
whereof depended upon the lessee's
need for the premises and his ability to
pay the rents; and
(2) the compromise agreement entered
into in the aforesaid Civil Case No.
051063-CV constitutes res judicata to
the case before it.
Petitioner appealed to the RTC of Manila
which, in its decision of January 28, 1988,
affirmed the decision of the lower court.
CA affirmed RTC and held that:
(1) the stipulation in the compromise
agreement which, in its formulation,
allows the lessee to stay on the
premises as long as he needs it and can
pay rents is valid, being a resolutory
condition and, therefore, beyond the
ambit of Article 1308 of the Civil Code;
and
(2) that a compromise has the effect of res
judicata.
ISSUE:
Was the stipulation in the compromise
agreement which allows the lessee to stay
on the premises as long as he needs it and
can pay rents is valid?
RULING:
No. The decision of respondent CA is
REVERSED and SET ASIDE.
HELD:
The disputed stipulation "for as long as the
defendant needed the premises and can
meet and pay said increases" is a purely

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Different Kinds of Obligations: Pure and Conditional Obligations #2

potestative condition because it leaves

the effectivity and enjoyment of leasehold
rights to the sole and exclusive will of the
lessee.

It is likewise a suspensive condition

because the renewal of the lease, which
gives rise to a new lease, depends upon
said condition. It should be noted that a
renewal constitutes a new contract of lease
although with the same terms and
conditions as those in the expired lease.
It should also not be overlooked that said
condition is not resolutory in nature
because it is not a condition that
terminates the lease contract. The lease
contract is for a definite period of three (3)
years upon the expiration of which the
lease automatically terminates.
The invalidity of a condition in a lease
contract similar to the one at bar has been
resolved in Encarnacion vs. Baldomar, et
al. where we ruled that in an action for
ejectment, the defense interposed by the
lessees that the contract of lease
authorized them to continue occupying the
premises as long as they paid the rents is
untenable, because it would leave to the
lessees the sole power to determine
whether the lease should continue or not.
As stated therein, "(i)f this defense were to
be allowed, so long as defendants elected
to continue the lease by continuing the
payment of the rentals, the owner would
never be able to discontinue it; conversely,
although the owner should desire the lease
to continue, the lessees could effectively
thwart his purpose if they should prefer to
terminate the contract by the simple
expedient of stopping payment of the
rentals. This, of course, is prohibited by the
aforesaid article of the Civil Code.
The continuance, effectivity and fulfillment
of a contract of lease cannot be made to
depend exclusively upon the free and
uncontrolled choice of the lessee between
continuing the payment of the rentals or
not, completely depriving the owner of any
say in the matter. Mutuality does not obtain
in such a contract of lease and no equality
exists between the lessor and the lessee

since the life of the contract is dictated

solely by the lessee.

The interpretation made by respondent

court cannot, therefore, be upheld. The
compromise
agreement,
read
and
interpreted in its entirety, is actually to the
effect that the last portion thereof, which
gives the Villavicencio sixty (60) days
before the expiration of the term the right
to give notice of his intent to renew, is
subject to the first portion of said
paragraph that "the term of the lease shall
be renewed every three (3) years," thereby
requiring the mutual agreement of the
parties.
The use of the word "renew" and the
designation of the period of three (3) years
clearly confirm that the contract of lease is
limited to a specific period and that it is not
a continuing lease. The stipulation provides
for a renewal of the lease every three (3)
years; there could not be a renewal if said
lease did not expire, otherwise there is
nothing to renew.
The contract of lease should be and is
hereby construed as providing for a definite
period of three (3) years and that the
automatic increase of the rentals by twenty
percent (20%) will take effect only if the
parties decide to renew the lease. A
contrary interpretation will result in a
situation where the continuation and
effectivity of the contract will depend only
upon the will of the lessee, in violation of
Article 1308 of the Civil Code and the
aforesaid doctrine in Encarnacion.
Moreover, perpetual leases are not favored
in law, nor are covenants for continued
renewals tending to create a perpetuity,
and the rule of construction is well settled
that a covenant for renewal or for an
additional term should not be held to
create a right to repeated grants in
perpetuity,
unless
by
plain
and
unambiguous terms the parties have
expressed such intention.
A lease will not be construed to create a
right to perpetual renewals unless the
language employed indicates dearly and
unambiguously that it was the intention

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Different Kinds of Obligations: Pure and Conditional Obligations #2

and purpose of the parties to do so. A

portion in a lease giving the lessee and his
assignee the right to perpetual renewals is
not favored by the courts, and a lease will
be construed as not making such a
provision unless it does so clearly.
As we have further emphasized:

It is also important to bear in mind that in a

reciprocal contract like a lease, the period
of the lease must be deemed to have been
agreed upon for the benefit of both parties,
absent language showing that the term
was deliberately set for the benefit of the
lessee or lessor alone. We are not aware of
any presumption in law that the term of a
lease is designed for the benefit of the
lessee alone. . .
In addition, even assuming that the clause
"for as long as the defendant needed the
premises and can meet and pay, said
increases" gives Villavicencio an option to
renew the lease, the same will be
construed as providing for but one renewal
or extension and, therefore, was satisfied
when the lease was renewed in 1982 for
another three (3) years.
A general covenant to renew is satisfied by
one renewal and will not be construed to
confer the right to more than one renewal
unless provision is clearly and expressly
made for further renewals. 16Leases which
may have been intended to be renewable
in perpetuity will nevertheless be construed
as importing but one renewal if there is any
uncertainty in that regard.
The case of Buccat vs. Dispo et al., relied
upon by respondent court, to support its
holding that respondent lessee can legally
stay on the premises for as long as he
needs it and can pay the rents, is not in
point. In said case, the lease contract
provides for an indefinite period since it
merely stipulates "(t)hat the lease contract
shall remain in full force and effect as long
as the land will serve the purpose for which
it is intended as a school site of the
National Business Institute, but the rentals
now stipulated shall be subject to review
every after ten (10) years by mutual
agreement of the parties." This is in clear

contrast to the case at bar wherein, to

repeat, the lease is fixed at a period of
three (3) years although subject to renewal
upon agreement of the parties, and the
clause "for as long as defendant needs the
premises and can meet and pay the rents"
is not an independent stipulation but is
controlled by said fixed term and the option
for renewal upon agreement of both
parties.

Note: I did not include the 2 nd issue

anymore regarding res judicata. . .
WHEREFORE, the decision of respondent
Court of Appeals is REVERSED and SET
ASIDE. Villavicencio is hereby ordered to
immediately vacate and return the
possession of the leased premises subject
of the present action to petitioner and to
pay the monthly rentals due thereon in
accordance
with
the
compromise
agreement until he shall have actually
vacated the same. This judgment is
immediately executory.
SO ORDERED.
Melencio-Herrera
(Chairperson),
Padilla and Sarmiento, JJ., Concur.

Paras,