A.C. No. 5161 - Re: Rolando S. Torres

On April 1, 1949, Ambrosio Magsaysay, the registered owner of a 1,171.70 sq.m. parcel of land in Sampaloc, Manila, and the late Bernardo M. Dizon executed a written lease contract.
Bernardo Dizon had been the lessee since 1937 and had constructed a residential house and a six-lane bowling alley on the premises.
The executed lease contract specifically covered two portions:

A monthly rental fee of P100.00, to be paid in advance on or before the 15th of each month.
A fixed lease period of two years from April 1, 1949, with the possibility of renewal for an equal period, subject to express conditions to be agreed between the parties.
A preferential right (paragraph 9) granting the lessee the option to buy the property under the same price and conditions in the event that the lessor decided to sell the land.

The lease term expired on April 1, 1951 without an express renewal.
Despite the expiration, Bernardo Dizon continued to occupy the premises with Ambrosio Magsaysay’s acquiescence and continued paying the agreed monthly rental, giving rise to an implied new lease under Article 1670 of the Civil Code.
The contention arose on whether the implied new lease revived all the contractual terms, particularly the preferential right to purchase.

On March 3, 1953, Ambrosio Magsaysay’s counsel notified Bernardo Dizon of the termination of the lease for the month.
It was revealed on March 24, 1953, that negotiations had been concluded as early as February 19, 1953, for the sale of the entire lot to Nicanor Padilla.

The sale negotiations culminated in an absolute deed of sale executed on March 7, 1953.
A subsequent supplementary agreement established a condition that if the seller (Magsaysay) did not eject all tenants within a certain period, a portion of the purchase price (P48,000.00) would be forfeited.

A new certificate of title was issued to Nicanor Padilla on March 11, 1953.
Upon learning of the sale, Bernardo Dizon invoked his preferential right under paragraph 9 of the original lease contract by communicating his position to both Magsaysay and Padilla.

Bernardo Dizon initiated a suit on March 25, 1953, against both Ambrosio Magsaysay and Nicanor Padilla.

A declaration that the deed of sale was null and void.
An order for the defendants to sell the land to him.
Payment of damages and attorney’s fees.
Alternatively, the payment of specific sums as actual damages, compensation for business losses, and moral damages.

Nicanor Padilla was also named as a party-defendant on the basis that he was aware, or should have been aware, of Dizon’s occupancy and the existence of the preferential right.
The trial court dismissed Dizon’s complaint as well as Padilla’s counterclaim on August 18, 1955.
The Court of Appeals, affirming the trial court decision, emphasized a crucial issue regarding the revival of the preferential right under the implied new lease arrangement.

Whether the continuance of possession by Bernardo Dizon, after the expiration of the original two-year lease, with the lessor’s acquiescence, constitutes an implied new lease under Article 1670 of the Civil Code.
Whether the implied new lease thereby revives all the terms of the original lease contract, in particular the preferential right of purchase, despite the express provision in the contract that renewal be subject to new express conditions.
Whether the express agreement between the parties regarding renewal (which specified that new conditions would be negotiated) precludes the revival of the lessee’s preferential right to purchase under the legal provision of an implied lease.