Title
Jai-Alai Corporation of the Philippines vs. Ching Kiat Biek
Case
G.R. No. L-7969
Decision Date
Mar 30, 1960
A 1949 lease dispute between Jai-Alai Corp. and Casino Royale over concessions in a Manila stadium, involving breach claims, counterclaims, and a court ruling favoring defendants with reimbursement for investments and damages.
lease agreement
bars
restaurants

Case Summary (G.R. No. L-7969)

Factual Background

The plaintiff alleged that, in the latter part of 1947, it invited proposals to lease three of its four stadium bars and restaurants—specifically the Keg Room, Bamboo Bar, and Popular Bar—located respectively on the ground, second, and third floors. The plaintiff further alleged that on January 6, 1948, the defendants submitted a bid not only for those three locations but also for the Sky Room, a night club, restaurant, and bar situated on the fourth floor.

According to the complaint, the parties entered into negotiations and ultimately agreed that the defendants would operate as concessionaires for a period of five years in exchange for rentals equivalent to ten percent of the gross daily sales, with a guaranteed minimum annual rental of P78,000.00, and twenty percent of the gross sales from the Sky Room from 6:00 p.m. until closing time. The complaint also alleged that the defendants agreed to invest in finishing the interior of the leased establishments based on the plaintiff’s architect’s plans and specifications, with a minimum investment of P130,000.00, and to equip the premises with furniture, equipment, and fixtures with a minimum investment of P115,000.00, all to become the plaintiff’s property upon expiration of the five-year term.

The plaintiff further alleged that the defendants later complained of losses and of the need for additional spending beyond the agreed minimum investment. The defendants requested that the plaintiff assume the excess cost. The plaintiff agreed, but only up to P130,000.00, to be financed through a loan whose payment would be amortized through the rentals due from the defendants. The complaint then narrated further modification demands by the defendants, including reduction of the yearly rental from P78,000.00 to P60,000.00, under threat of noncompliance and return of the premises.

The plaintiff alleged that on January 15, 1949, the defendants closed the Sky Room nightclub despite admonitions from the plaintiff that the closure would violate the contract. The plaintiff then asserted that, to minimize damages, it took back the concessions, and that the defendants’ unjustified breach caused total damages of P390,000.00, representing the minimum total rental for the five-year term at P78,000.00 per year.

Defendants’ Answer, Defenses, and Counterclaim

In their answer filed April 26, 1949, the defendants denied most of the complaint’s allegations and asserted, as special defenses, that their bid was accepted by the plaintiff and became the contract between them. The defendants claimed that, with the plaintiff’s knowledge and consent, they took possession of the premises, reconstructed, and equipped the concessions according to the plaintiff’s plans. They alleged that they spent approximately P456,547.90 on the basis of the plaintiff’s assurance that the plaintiff would assume payment of the excess beyond an amount they agreed to invest of P250,000.00.

The defendants alleged that the plaintiff interfered with their management and operation, despite their protests. They further alleged the plaintiff’s failure to provide promised facilities, including elevator services, installation of air-conditioning units, and provision of a check room for the Sky Room. They stated that due to the plaintiff’s continued violation and threats of disruptions, the defendants suspended Sky Room operations around January 16, 1949. The defendants then claimed that, on January 24, 1949, the plaintiff took over the entire concessions and thereafter operated or relet them for its own account to a third party over the defendants’ protest.

They characterized these acts as a wanton violation of the contract that relieved them of liability, especially as to future rents. They also filed a counterclaim seeking payment of P415,804.85 (representing their total investment in rehabilitation minus rentals in arrears), P6,666.66 per month as reasonable rental value of improvements and equipment, P130,000.00 as damages for losses due to plaintiff’s interference and failure to provide necessary facilities, and P570,000 for unrealized profits from January 24, 1949 for ten years.

Plaintiff’s Response to the Counterclaim and Trial Outcome

The plaintiff filed an answer to the counterclaim on May 6, 1949, denying liability. It later amended its position by inserting its own counterclaim asserting that, under the contract, all equipment, furniture, and fixtures installed by the defendants would become the plaintiff’s property upon expiration of the contract, and that the defendants’ breach caused damages of P350,000, representing the value of improvements and equipment. The defendants denied those allegations and repeated their prior defenses.

After a prolonged trial exceeding four years, the lower court on December 22, 1953 ruled for the defendants. It ordered the plaintiff to pay P338,704, with legal interest from January 24, 1949 until full payment, to pay the amount due from defendants to Gonzalo Puyat & Sons in the sum of P53,048.50, and to pay the costs.

The plaintiff appealed directly to the Supreme Court.

The Parties’ Evidence and the Trial Court’s Core Findings

The Supreme Court recounted that the evidence adduced at trial, as found by the trial court, established that the plaintiff, through its general manager Luis de Leon, accepted the defendants’ bid for the lease of the bars and restaurants. After acceptance, and with the plaintiff’s knowledge and consent, the defendants began repair and rehabilitation works and purchased furniture, equipment, and utensils.

The trial court found that, in following the plans and specifications proposed by the plaintiff’s architect, the defendants discovered that the required rehabilitation expenses totaled P461,566.22. The defendants had agreed to invest only a maximum of P245,000.00, exclusive of P5,000.00 for uniforms. They therefore suggested that, in equity, the plaintiff should assume the cost exceeding the agreed maximum. The plaintiff’s executive committee agreed under conditions that required the defendants to raise the additional amount through a loan; the plaintiff would guarantee payment; the defendants would pay the loan interest; and the loan would be amortized with rentals due to the plaintiff.

The trial court also found that the loan was obtained through borrowing arrangements involving Mrs. Teresa de Leon, wife of the plaintiff’s manager Luis de Leon, with a promissory note signed by persons acting as accommodations as insisted by the lender. The defendants also obtained credit from Manalas, Da. Silva, and Gonzalo Puyat & Sons.

In addition, the trial court found that shortly after bid acceptance, the plaintiff proposed modifying the Sky Room arrangement. Instead of ten percent under the bid, the plaintiff sought twenty percent of gross sales in the Sky Room. The defendants accepted subject to the condition that the twenty percent rate would apply only to sales after 6:00 p.m., and that the rate could be decreased as business conditions demanded.

Crucially, the trial court further found that during the defendants’ operations, they were “constantly handicapped and embarrassed” by undue interference in management and operation by officers of the plaintiff. Despite protests and pleadings by the defendants, plaintiff’s officials refused to desist. As a result, on January 24, 1949, the plaintiff took over the concessions, operated the Sky Room, and leased other rooms and bars to a third party for P3,000.00 monthly for its own account.

Issues on Appeal and the Supreme Court’s Treatment

The plaintiff’s appeal advanced multiple challenges, but the Court held that the questions raised hinged largely on credibility and evidentiary weighing. The Court emphasized that, absent compelling reasons, the trial court’s findings were entitled to respect because the trial judge had the advantage of hearing witnesses and observing demeanor.

One main contention was that the plaintiff insisted that the operative contract was embodied in exh. K, not in exh. J. The plaintiff argued that Mrs. Gertrudes C. Chung, allegedly authorized to negotiate for the defendant partnership, had signed exh. K, and that the defendants should be estopped from denying authority. The Supreme Court rejected that position. It observed that exh. K appeared to be only a draft with numerous alterations by different hands using different inks or pencils. It noted that it did not bear the signature of any party, including the plaintiff or its representative. It further found that the signature “Ricardo C. Chung” under the typed words “Mrs. Ricardo Chung” was not proved to be the authorized signature of someone duly empowered to sign on behalf of the defendants. The Court also highlighted that Mrs. Gertrudes C. Chung and Mrs. Ricardo Chung were two distinct persons, one being the Filipino wife of a defendant’s father and office manager in charge of personnel for Casino Royale, and the other being the Chinese wife of defendant Ricardo Chung as the checker. The Court noted neither of them was mentioned as a party to the alleged contract, and neither was shown to be authorized to sign it.

Even assuming arguendo that the contract were either the bid in exh. J or the draft in exh. K, the Supreme Court found it decisive that the concession had been cancelled by the plaintiff. The Court further stressed that both documents stipulated that, in such an eventuality, plaintiff would refund the defendants the inventoried cost of equipment and improvements less depreciation at 20% per annum.

The Court also addressed the defendants’ alleged non-abandonment of the concessions. It held that the evidence did not support the notion that defendants abandoned the concessions. The Court found it significant that, while the Sky Room was closed, it was closed only temporarily due to a strike by employees. It also reasoned that it would be unnatural for defendants to invest hundreds of thousands of pesos and then

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