Facts:

The case revolves around Coca-Cola Bottlers Philippines, Inc. (the petitioner) and private respondents Cesar Bautista and the heirs of Paciano Bautista. The events leading to this case began in 1981, when Coca-Cola expressed interest in leasing a parcel of land owned by the Bautistas in Malabon, Metro Manila. Initial negotiations were conducted by a Sales Supervisor named Manaloto, who sought to finalize a lease agreement for a duration of ten years, as opposed to the five years that Bautista preferred. Ultimately, both parties entered into a lease contract for a period of ten years, commencing on October 1, 1982, and concluding on September 30, 1992, with an option for a further five-year renewal upon mutual agreement.

In preparation for its operations, Coca-Cola improved the leased land, which was partially submerged, by filling it with ten truckloads of materials. They constructed a warehouse and sales office that required significant investment, amounting to approximately P4

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Facts:

Parties Involved

• Petitioner: Coca-Cola Bottlers Philippines, Inc. (“Coca-Cola”)
• Respondents: Cesar Bautista and the Heirs of Paciano B. Bautista

Formation of the Lease Contract

• In 1981, Coca-Cola, through its Sales Supervisor in Malabon, initiated negotiations with private respondent Cesar B. Bautista regarding leasing a parcel of land owned by him and his late brother, Paciano Bautista.
• Negotiations revealed differing preferences: respondent Bautista preferred a five-year lease term while Coca-Cola sought a ten-year term for the purpose of establishing a warehouse and sales office.
• The resulting contract of lease was executed on October 11, 1982, setting the term from October 1, 1982 to September 30, 1992, with a provision for a subsequent five-year renewal subject to mutual agreement.

Execution and Improvements on the Property

• Noticing that part of the land was under water, Coca-Cola filled the area with ten truckloads of filling material before beginning construction.
• Structures built by Coca-Cola included a warehouse, a sales office, a water tank, and a gasoline tank.
• The premises were integral to Coca-Cola’s operations, involving the use of numerous vehicles such as route trucks, haulers, and a forklift.

Emergence of Structural Problems and Remedial Measures

• During the rainy season (starting in June 1983), the leased premises began exhibiting structural issues: the warehouse and sales office were sinking, mud and silt emerged, and vehicles became immobilized.
• Coca-Cola promptly initiated remedial measures by filling the premises with additional materials and contracting San Agustin Construction Corp. to arrest the deterioration at a cost of P143,725.00.
• Despite these efforts, the sinking continued, prompting a subsequent inspection by Industrial Inspection (International), Inc. (IIII), which estimated further site development costs at P904,970.00, but could not guarantee that the remedial measures would permanently resolve the issue.

Dispute Over Lease Termination

• In December 1983, Coca-Cola communicated its intention to terminate the lease due to the persistent problems with the premises.
• Respondent Bautista, after meeting with Coca-Cola’s managers and consulting with the heirs of Paciano Bautista, reiterated his refusal to accept a pre-termination of the lease.
• Subsequently, respondents filed a complaint in the Regional Trial Court for specific performance and damages, leading to a judgment ordering Coca-Cola to pay rentals in arrears, interest, and, alternatively, an amount representing unrealized rental income for the lease duration.

Progression Through the Courts

• The Regional Trial Court ruled in favor of the respondents by awarding specific performance and damages.
• Coca-Cola elevated the case to the Court of Appeals seeking reimbursement for the cost of improvements and other expenses incurred.
• The Court of Appeals affirmed the RTC decision, holding that the respondents had fulfilled their obligations and that Coca-Cola, having been fully aware of the land’s condition (as evidenced by its remedial measures), bore the responsibility for the premises’ suitability.
• Coca-Cola’s subsequent Motion for Reconsideration was denied, leading to the petition for review on certiorari before the Supreme Court.

Issue:

Determination of Repair Obligations

• Whether the lessors (respondents) had a duty to fill or repair the leased premises to render it fit for the use intended, or whether the responsibility rested with the lessee (Coca-Cola).
• Whether the remedial measures already undertaken by Coca-Cola absolved the respondents of any obligation to further repair the property.

Disclosure and Warranty Against Hidden Defects

• Whether the respondents were liable under the warranty against hidden defects, given that the leased land was a former fishpond—a fact that, if concealed, might have affected the lessee’s decision.
• Whether the respondents acted in bad faith by not disclosing the true nature of the land, contrasted with the fact that Coca-Cola had ample opportunity (through inspections and information such as the tax declaration) to ascertain the property’s condition.

Justification for Pre-Termination of the Lease

• Whether Coca-Cola was justified in pre-terminating the lease on the basis that the property was not maintained in a condition conducive to its intended commercial use.
• Whether the arguments raised by Coca-Cola regarding its right to enjoyment of the leased premises under Article 1643 of the Civil Code were valid in light of their own actions and the contract’s stipulations.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)