G.R. No. 94070 - Santos vs. Macaraig

In 1964, the government reserved lots in the South Harbor, Port Area, Manila, intended for the building site of the Reparations Commission.
In 1968, the Commission constructed a 5-storey building with a floor area of 3,618 square meters on the reserved lots.
In 1980, following the abolition of the Commission, its assets and liabilities were transferred to the Board of Liquidators.
In 1989, the Board offered the building for lease, and Mariano A. Nocom emerged as the highest bidder.

In 1990, the Board and Mariano executed an initial lease contract which included a right to renovate the building.
Due to a delay in transferring the building, rehabilitation works were halted, prompting further negotiations.
On October 18, 1991, the Board and Mariano executed an amended contract of lease for a period of 20 years commencing on October 1, 1993, and ending on September 30, 2013.
The amended contract provided for:

A renewal option for another 20 years upon mutual agreement if Mariano notified the lessor in writing within 90 days before expiration.
An agreed increase of 10% in the monthly rental every four years.

On March 7, 1995, the Commission on Audit (COA) disallowed the lease due to Mariano’s failure to secure an approved construction/rehabilitation plan.
Consequently, the Board refused to accept rental payments, leading Mariano to seek remedial action through the COA En Banc, which ultimately lifted the disallowance.
Mariano then filed an action for specific performance against the Board and its officers before the RTC of Manila, Branch 22.
In 1996, the Board’s functions were transferred to the Asset Privatization Trust, which was later impleaded in the case.

On February 12, 1998, the RTC approved a Compromise Agreement between Asset Privatization and Mariano.
The agreement ratified the amended contract of lease and extended its term by incorporating the period the contract was suspended—from March 7, 1995 until the date of ratification.
The extension amounted to two (2) years, eleven (11) months, and three (3) days and was to be tacked onto the original expiration schedule.

Transfer to the Privatization and Management Office (PMO) and Subsequent Communications

In 2001, the Asset Privatization Trust’s powers and duties were transferred to the Privatization and Management Office (PMO).
On February 24, 2011, the PMO demanded rental payment adjustments reflecting the stipulated 10% increase every four years under the amended contract, expressly indicating that such increases covered a period of twenty years starting from February 12, 1998.
On August 24, 2016, the PMO informed Mariano through a letter that the lease would expire on September 3, 2016, and instructed him to vacate the building, concurrently ceasing the acceptance of rental payments.

On September 6, 2016, Mariano replied, insisting that the lease was valid until February 11, 2018, and claiming he was exercising his right to renew the lease for another 20 years.
Despite Mariano’s tender of rental payments, the PMO refused them and reiterated its demand for vacation of the premises on October 27, 2016.
In response, Mariano filed an action for injunction, which sought a TRO, writ of preliminary injunction, specific performance, consignation, and damages before the RTC of Makati City.
Initially, a TRO was issued enjoining the PMO from initiating an eviction case, but later the RTC, Branch 135, ruled that the actual expiration of the amended lease was September 3, 2016.
The RTC held that the Compromise Agreement served as an extension (rather than a renewal) and that Mariano’s notice to renew, given on September 6, 2016—three days after the expiration—rendered the renewal ineffective.

Whether the Compromise Agreement constituted a renewal of the lease or merely an extension of its original term.
The legal distinction between a renewal clause (requiring a new agreement) and an extension clause (which operates automatically to prolong the existing contract).

What is the correct expiration date of the amended contract of lease after accounting for the suspended period?
Whether the extension period, when tacked onto the original lease term, yields an expiration date of September 3, 2016, or February 11, 2018.

Whether Mariano’s notification on September 6, 2016, his purported exercise of the right to renew, is legally effective given the timing after the lease’s expiration.
The implication of the notice timing in view of the contractual requirement to notify within 90 days before expiration.

Whether the PMO’s letters (such as the one dated February 24, 2011) can be construed to imply a renewal intent beyond the explicit terms of the Compromise Agreement.
The role, if any, of such extraneous evidence in interpreting the parties’ true intent regarding renewal versus extension.