Title
Leveriza vs. Intermediate Appellate Court
Case
G.R. No. 66614
Decision Date
Jan 25, 1988
A dispute over lease contracts for land in the Manila International Airport area, involving the cancellation of a lease due to an unauthorized sublease and the validity of subsequent agreements executed by the CAA Administrator without higher approval.
valid sublease
cancellation authority
presumption of regularity
A

Case Summary (G.R. No. 66614)

Key Dates

Contract A: April 2, 1965 (CAA — Rosario C. Leveriza; ~4,502 sq. m.; 25 years). Contract B: May 23, 1965 (Rosario C. Leveriza — Mobil; 3,000 sq. m.; 25 years). Cancellation letter by Airport General Manager: June 28, 1966. Contract C: June 1, 1968 (CAA — Mobil; ~3,000 sq. m.; 29 years alleged). Trial court judgment: April 6, 1976. Court of Appeals decision: February 29, 1984. Supreme Court decision: January 25, 1988.

Applicable Law

Primary statutory and doctrinal provisions relied upon in the decision: Sections 567 and 568 of the Revised Administrative Code (rules on who may execute contracts affecting government real property); Section 32(24) of Republic Act No. 776 (powers and duties of the CAA Administrator, including authority to enter into contracts and to acquire/lease real property administered by the CAA); Civil Code provisions on assignment and sublease (including Article 1649/1650 principles as discussed by the parties regarding need for express prohibition to bar sublease); and the Court’s prior pronouncement in San Mauricio Mining Co. v. Ancheta on government personnel error and public interest. The decision was rendered under the post-1987 constitutional regime (decision date 1988).

Facts and Overlap of Contracts

Three leases covered the same parcel at MIA. Contract A (CAA to Rosario) covered ~4,502 sq. m. for 25 years. Contract B (Rosario to Mobil) effectively subleased 3,000 sq. m. of the same area for 25 years. Contract C (CAA to Mobil) covered ~3,000 sq. m. for 29 years (dated June 1, 1968). The parties agreed there was a common subject parcel; the core factual dispute concerned whether Contract A remained in force after CAA’s cancellation and whether Contract B could be validly made without CAA’s consent.

Procedural Posture

Mobil sought rescission of Contracts A and B (arguing A had been cancelled by CAA and that Contract C was the only valid lease). The Leveriza heirs contended Contract A remained valid and that Contract C was void. CAA asserted both that the cancellation of Contract A by its Airport General Manager was ineffective without departmental approval yet argued that Contract B violated Contract A’s terms and warranted annulment; CAA also questioned the validity of Contract C for lack of departmental approval, but later adopted the view that the CAA Administrator had authority to execute leases under RA 776. The trial court ruled (April 6, 1976) that Contract A was validly cancelled effective June 28, 1966; Contract B thus ceased effect; Contract C was valid and subsisting; refunds and mutual restitutions were ordered. The Court of Appeals affirmed in toto on February 29, 1984. The Supreme Court denied the petition for review and affirmed the judgment.

Issues Presented

  1. Whether the Administrator of CAA had statutory authority to lease government real property without approval of the Secretary of Public Works and Communications. 2) Whether the Administrator had statutory authority to cancel a lease over government property without Secretary approval when that lease had earlier been approved by the Secretary. 3) Whether the sublease (Contract B) between Rosario and Mobil was valid without prior consent of CAA.

Court’s Analysis — Authority to Cancel and Presumption of Regularity

The Court accepted that Contract A was valid when executed but focused on whether the cancellation by CAA was effective. The cancellation letter was signed by the Airport General Manager “For the Director” and was subsequently affirmed or ratified by the CAA Director. The Court relied on the presumption of regularity for such official acts and found no infirmity in the effective cancellation. The Court also emphasized that the contract itself (Contract A) contained an express clause (paragraph 8) authorizing revocation by the lessor for failure to comply with contractual terms, and that the lessee had breached an express term (unauthorized transfer/sublease). Thus, cancellation fell squarely within the contractual remedy expressly provided to the lessor.

Court’s Analysis — Effect of Government Accounting/Billing Error

The petitioners argued that subsequent billing by the CAA Accounting Department effectively waived or nullified the cancellation. The Court rejected that argument, citing the public interest principle recognized in San Mauricio Mining Co. v. Ancheta: errors of government personnel should not defeat the government’s or the public’s right to rectify mistakes. The Court therefore found that an accounting billing after cancellation, if it occurred, was an error that could be corrected and did not validate the lessee’s continuing rights under Contract A.

Court’s Analysis — Nature of Paragraph 7 (Transfer of Rights) and Sublease Requirement

Petitioners contended paragraph 7 of Contract A applied only to assignment (Article 1649 regime) and not to sublease, invoking Civil Code Article 1650 (prohibition to sublease must be express). The Court examined the contract language and concluded paragraph 7 referred broadly to transfer of rights to the leased premises and plainly required the lessor’s consent for any such transfer. The clause was not ambiguous; it required prior consent and was distinct from the formal Civil Code distinction between assignment and sublease. Because the Leverizas subleased (Contract B) without obtaining CAA’s required consent, they breached Contract A. The Court therefore sustained the cancellation based on that contractual breach.

Court’s Analysis — Authority to Execute Leases (Revised Administrative Code vs. RA 776)

The petitioners invoked Sections 567 and 568 of the Revised Administrative Code, arguing that contracts involving government real property must be executed by the President or an officer duly designated by him or with Department Head approval. The Court found, however, that Republic Act No. 776 is a special law that expressly vests authority in the CAA Administrator (Section 32(24)) to enter into and execute contracts, to acquire, hold, purchase or lease property under the CAA’s administration. Applying the canon that special statutes control over general statutes and that specific statutory provisions prevail, the Court held that the CAA Administrator had aut

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