G.R. No. 125497 - Unicane Food Products Manufacturing, Inc. vs. Court of Appeals

The case involves a petition for review on certiorari regarding a decision by the Court of Appeals that reversed a trial court's ruling in favor of the petitioner, Unicane Food Products Manufacturing, Inc.
On June 6, 1975, Felisa Feliciano Manese entered into a lease agreement with Roberto Regala Keh Yung for a parcel of land, with an option to buy, for a period of fifteen years at an annual rental of P10,000.
An amendment to the lease was made shortly after, designating Unicane as the actual lessee while retaining the original terms.
Unicane complied with the lease terms, paying advance rentals and later extending the lease verbally until December 7, 1997, for which it paid an additional P20,000 in advance.

In 1978, Felisa sold three parcels of land to her daughters, Lutgarda and Ciceron Manese, for P15,000 without her husband’s consent, with the understanding that the property would revert to her once her daughters' financial situation improved.
A new title was issued in the daughters' names, and they later mortgaged the property without any proceeds going to Felisa.
Unicane, upon realizing Felisa's reluctance to formalize the lease extension, sought to register its advance rental payments as an encumbrance on the property and discovered the sale to Felisa's daughters.

Unicane demanded that the sale be disregarded, asserting its preferential option to buy the property, but the daughters refused to extend the lease beyond 1990.
Consequently, Unicane filed a complaint for annulment of the deed of absolute sale against the respondents.
The trial court ruled in favor of Unicane, declaring the lease extended until 1997, nullifying the sale to the daughters, and ordering the execution of a new deed of sale in favor of Unicane.

The Court of Appeals reversed the trial court's decision, stating that the sale was simulated and lacked genuine intent to transfer ownership, as no payment was made to Felisa.
The appellate court concluded that the lease had not been validly extended and that Unicane's preferential option to buy was lost with the expiration of the lease contract in 1990.

Unicane raised three main issues: the validity of advance rentals as evidence of lease extension, the enforceability of the simulated sale, and the right to invoke the option to buy after the lease expired.

The Supreme Court ruled that the advance rentals could not be construed as evidence of an extension of the lease, emphasizing Felisa's illiteracy and lack of understanding regarding the receipts she signed.
The Court highlighted the obligation of the party enforcing the contract to ensure that terms were fully explained to an illiterate party, as per Article 1332 of the Civil Code.