G.R. No. 64220 - Searth Commodities Corp. vs. Court of Appeals

In the latter part of 1947, the plaintiff, Jai-Alai Corporation, sought proposals for the lease of its bars, restaurants, and a nightclub located within its stadium at Taft Avenue, Manila.
On January 6, 1948, defendants submitted a bid not only for the bars and restaurants (Keg Room on the ground floor, Bamboo Bar on the second floor, and Popular Bar on the third floor) but also for the Sky Room (a nightclub, restaurant, and bar on the fourth floor).
The bid and subsequent negotiations resulted in a contract for a 5‑year concession, with rental terms calculated as 10% of gross daily sales (with a guaranteed minimum annual rental of P78,000.00) for the bars/restaurants and 20% from the Sky Room for sales after 6 p.m., with the latter subject to modification based on business conditions.

Defendants agreed to invest in the finishing and equipping of the leased premises, committing a minimum of P130,000.00 for interior finishing and P115,000.00 for equipment, furniture, and fixtures, which were to revert to the plaintiff at the end of the contract period.
After commencing operations, defendants expressed concerns over financial losses and rising reconstruction costs, noting that expenses exceeded the agreed maximum investment.
As a matter of equity, defendants requested that the plaintiff assume the additional cost. The plaintiff agreed to assume an extra amount of P130,000.00, subject to conditions whereby defendants would raise the extra funds via a loan, with repayments deducted from rental payments.

Defendants later sought further modifications to the contract, including a reduction of the annual rental from P78,000.00 to P60,000.00, threatening to return the premises if their demands were not met.
On January 15, 1949, defendants unilaterally closed the Sky Room, which the plaintiff regarded as a breach of contract, leading the plaintiff to eventually retake the management of the concessions on January 24, 1949.
Plaintiff claimed that the defendants’ actions amounted to an unjustified breach and an abandonment of the contract, resulting in damages calculated on the basis of the stipulated 5‑year rental at P78,000.00 per annum, totaling P390,000.00.

In the initial pleadings filed on March 30, 1949, the plaintiff sought recovery of P390,000.00 in damages due to the alleged breach of contract.
On April 26, 1949, defendants answered the complaint by denying most allegations and raised special defenses asserting that the bid, identified as exhibition “J”, was the contract that both parties had agreed upon.
Defendants also counterclaimed for a sum exceeding P415,804.85, which included the total amount invested in rehabilitation, allowances for reasonable rental value of the improvements, damages for losses incurred due to the plaintiff's interference, and compensation for unrealized profits.
The plaintiff, in turn, filed an answer to this counterclaim and inserted a counterclaim alleging that all equipment and improvements were to become its property upon expiration of the contract, contending that defendants’ breach had caused additional damages amounting to P350,000.00.

During the lengthy trial (lasting more than four years), evidence was presented showing that the plaintiff, through its general manager Luis de Leon, accepted the defendants’ bid (exhibition “J”) and that the defendants proceeded with the rehabilitation of the concessions at considerable expense (totaling approximately P461,566.22).
It was found that the plaintiff’s acceptance was clear, and later modifications to the contract (including the terms regarding the Sky Room) had been mutually agreed upon.
The trial court also noted that interference by the plaintiff in the management of the concessions continued unabated, ultimately leading to its takeover of the concessions.
Disputed exhibits (notably, exhibition “J” versus exhibition “K”) and the authenticity of signatures were examined; the bid (exh. J) stood as the binding agreement since the draft (exh. K) contained numerous alterations and lacked valid endorsements.

On December 22, 1953, the Court of First Instance rendered a decision in favor of the defendants, ordering the plaintiff to pay a total of P338,704 plus legal interest from January 24, 1949, along with additional sums related to a separate account and the costs of the action.
The judgment included detailed computations concerning the refund owed to the defendants for their investment, with deductions for depreciation calculated at 20% per annum (resulting in only 10% depreciation over the roughly 6‑month period).
The lower court recognized that the plaintiff’s reserved contractual right to cancel the lease upon proper reimbursement was valid, and any ambiguity regarding counterclaims and evidentiary challenges (including cross‑examination issues and motions to introduce additional parties) did not warrant reversal of its findings.

Whether the bid submitted by the defendants (exh. J) constituted the final and binding contract between the parties, despite the existence of a contested draft (exh. K) with multiple alterations.
Whether the signatures and drafting discrepancies in exh. K undermine its claim as the valid contract over the bid that was accepted and acted upon.

Whether the plaintiff was entitled to cancel the contract unilaterally by taking over the concessions, based on the reserved right stated in the terms for bids.
Whether such unilateral cancellation, accompanied by interference in the operation of the concessions, amounted to a breach justifying the performance of the refund obligation as stipulated.

Whether the trial court properly evaluated the credibility of witnesses, including the absence of testimony by certain key individuals (e.g., General Manager Luis de Leon).
Whether the denial of certain motions (for additional rebuttal testimony and to amend pleadings) deprived the plaintiff of an opportunity to adequately present its case.