Title
Buce vs. Court of Appeals
Case
G.R. No. 136913
Decision Date
May 12, 2000
A lease dispute over renewal terms and rental increases, with the Supreme Court ruling no automatic renewal, upholding novation, and rejecting eviction in a specific performance case.
lease contract
interpretation
automatic renewal
A

Case Summary (G.R. No. 136913)

Factual Background

Petitioner leased a 56-square meter parcel at 2068 Quirino Avenue, Pandacan, Manila, under a written contract providing that the lease “shall be for a period of fifteen (15) years effective June 1, 1979, subject to renewal for another ten (10) years, under the same terms and conditions.” The agreed monthly rent was P200 and petitioner constructed a building to operate a commercial enterprise. Rent was gradually increased by respondents’ administrator until it reached P400 in 1985. Petitioner paid P1,000 monthly for July and August 1991. On December 6, 1991 respondents’ counsel notified petitioner that, under the Rent Control Law, the rent would be increased to P1,576.58 effective January 1992. Petitioner thereafter tendered checks for P400 for several months; respondents refused to accept them.

Procedural History in the RTC

On August 9, 1993 petitioner filed before the Regional Trial Court of Manila a complaint for specific performance with prayer for consignation, seeking an order compelling respondents to accept rentals at the contract rate and to respect the fifteen-year lease with renewal for ten years. Respondents answered and countered that rent had been increased and that the phrase “subject to renewal for another ten (10) years” did not create an automatic renewal but required mutual agreement. On August 29, 1995 the RTC declared the lease automatically renewed for ten years, citing the lessee’s right to erect improvements and the pre-expiration filing of the complaint as evidence of intent to renew, and it fixed graduated monthly rents for specified periods.

Court of Appeals Ruling

The Court of Appeals reversed the RTC. It held that the contractual phrase “subject to renewal for another ten (10) years, under the same terms and conditions” was ambiguous as to who could exercise the option to renew. Relying on Fernandez v. Court of Appeals, the court concluded that in reciprocal contracts the lease term was for the benefit of both parties and that renewal required mutual agreement. Because respondents did not consent to extension, the contract expired on June 1, 1994. The Court of Appeals also found that the tender and acceptance of increased rentals effected a novation, estopping petitioner from insisting on the old rental. The appellate court ordered petitioner to vacate the premises and to pay rental arrears at P1,000 per month.

Issue Presented

The principal legal question was whether the contractual phrase “subject to renewal for another ten (10) years” created an automatic renewal or merely an option that required mutual assent, and whether the Court of Appeals exceeded its authority by ordering petitioner to vacate the premises when the complaint was for specific performance rather than for recovery of possession.

Parties’ Contentions

Petitioner argued that the lease provision must be interpreted with regard to contemporaneous and subsequent acts of the parties and that such acts — permission to construct improvements, continuing acceptance of increased rentals, and filing of the complaint before expiration — evidenced an intent to renew automatically. Petitioner also contended that the Court of Appeals lacked power to order eviction because respondents had not prayed for ejectment and had not filed an unlawful detainer action. Respondents maintained that Fernandez v. Court of Appeals controlled: absent language showing the option was for the sole benefit of one party, the lease term was for the benefit of both and renewal required mutual agreement. Respondents further argued that the increase and nonacceptance of P400 reflected disagreement on rental and precluded renewal.

Supreme Court Ruling

The Supreme Court held that the phrase “subject to renewal for another ten (10) years” was ambiguous as to automatic renewal and that interpretation required resort to the parties’ acts and to applicable law. The Court applied the rule articulated in Fernandez v. Court of Appeals and Article 1196, CIVIL CODE, that in reciprocal contracts the lease period is presumed to be for the benefit of both parties absent explicit language to the contrary, and that renewal therefore depended on mutual agreement. The Court found no evidence that respondents had irrevocably consented to automatic renewal. Consequently, the lease terminated on June 1, 1994.

Legal Basis and Reasoning

The Court reasoned that a clause providing for renewal differs from a clause effecting an extension; renewal contemplates the cessation of the old contract and the execution of a new one. Because the questioned clause did not specify which party had the unilateral option, the period was deemed reciprocal and renewal could not be unilaterally imposed on respondents. The Court examined the contemporaneous and subsequent acts invoked by petitioner and found them inconclusive: permission to construct improvements was inherent in a long-term lease of an initially idle lot; the pre-expiration filing of the complaint was prompted by respondents’ refusal to accept P400 payments and did not demonstrate an agreed automatic renewal; and respondents’ acceptance of some increased rentals did not establish an intent to bind them to a further ten-year term. The Court emphasized that the life of a lease cannot be made to depend solely on the lessee’s unilateral choice and that owner-lessors retained the prerogative to terminate a lease at its expiration.

Court’s Limitation on Relief and Procedural Holding

Although the Court agreed that the lease expired, it found that respondents had not pleaded or litigated a claim for possession. Respon

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