G.R. No.

142378 March 7, 2002

LL AND COMPANY DEVELOPMENT AND AGRO-
INDUSTRIAL CORPORATION vs.HUANG CHAO CHUN AND
YANG TUNG FA

LEASE

A stipulation in a lease contract stating that its five-year term is

subject to "an option to renew" shall be interpreted to be reciprocal in
character. Unless the language shows an intent to allow the lessee to
exercise it unilaterally, such option shall be deemed to benefit both
the lessor and the lessee who must both consent to the extension or
renewal, as well as to its specific terms and conditions.

In general, the power of the courts to fix a longer term for a lease is
discretionary. Such power is to be exercised only in accordance with
the particular circumstances of a case: a longer term to be granted
where equities demanding extension come into play; to be denied
where none appear -- always with due deference to the parties'
freedom to contract.10 Thus, courts are not bound to extend the
lease.11

Article 1675 of the Civil Code excludes cases falling under Article
1673 from those under Article 1687. Article 1673 provides among
others, that the lessor may judicially eject the lessee upon the
expiration of "the period agreed upon or that which is fixed for the
duration of the leases." Where no period has been fixed by the
parties,12 the courts, pursuant to Article 1687, have the potestative
authority to set a longer period of lease.13

In the case before us, the Contract of Lease provided for a fixed
period of five (5) years -- "specifically" from September 16, 1991 to
September 15, 1996. Because the lease period was for a determinate
time, it ceased, by express provision of Article 1669 of the Civil Code,
"on the day fixed, without need of a demand."14 Here, the five-year
period expired on September 15, 1996, whereas the Complaint for
ejectment was filed on October 6, 1996. Because there was no longer
any lease that could be extended, the MeTC, in effect, made a new
contract for the parties, a power it did not have.15 Early on, in
Bacolod-Murcia Milling v. Banco Nacional Filipino,16 we said that a
court could not supply material stipulations to a contract, as follows:

"It is not the province of the court to alter a contract by construction

or to make a new contract for the parties; its duty is confined to the
interpretation of the one which they have made for themselves,
without regard to its wisdom or folly, as the court cannot supply
material stipulations or read into contract words which it does not
contain."

Furthermore, the extension of a lease contract must be made before

the term of the agreement expires, not after.17 Upon the lapse of the
stipulated period, courts cannot belatedly extend or make a new lease
for the parties,18 even on the basis of equity.19 Because the Lease
Contract ended on September 15, 1996, without the parties reaching
any agreement for renewal, respondents can be ejected from the
premises.20

Fernandez v. CA, from which we quote:24

"It is also important to bear in mind that in a reciprocal contract like a

lease, the period of the lease must be deemed to have been agreed
upon for the benefit of both parties, absent language showing that the
term was deliberately set for the benefit of the lessee or lessor alone.
We are not aware of any presumption in law that the term of a lease
is designed for the benefit of the lessee alone. Koh and Cruz in effect
rested upon such a presumption. But that presumption cannot
reasonably be indulged in casually in an era of rapid economic
change, marked by, among other things, volatile costs of living and
fluctuations in the value of the domestic currency. The longer the
period the more clearly unreasonable such a presumption would be.
In an age like that we live in, very specific language is necessary to
show an intent to grant a unilateral faculty to extend or renew a
contract of lease to the lessee alone, or to the lessor alone for that
matter. We hold that the above-quoted rulings in Koh v. Ongsiaco
and Cruz v. Alberto should be and are overruled."25

The foregoing doctrine was recently reiterated in Heirs of Amando

Dalisay v. Court of Appeals.26 Thus, pursuant to Fernandez, Dalisay
and Article 119627 of the Civil Code, the period of the lease contract
is deemed to have been set for the benefit of both parties. Its renewal
may be authorized only upon their mutual agreement or at their joint
will.28 Its continuance, effectivity or fulfillment cannot be made to
depend exclusively upon the free and uncontrolled choice of just one
party. While the lessee has the option to continue or to stop paying
the rentals, the lessor cannot be completely deprived of any say on
the matter.29 Absent any contrary stipulation in a reciprocal contract,
the period of lease is deemed to be for the benefit of both parties.30

As a rule, the owner-lessor has the prerogative to terminate the

lease upon its expiration.33 Second, in the present case, the
disagreement of the parties over the increased rental rate and private
respondents' failure to pay it precluded the possibility of a mutual
renewal. Third, the fact that the lessor allowed the lessee to introduce
improvements on the property was indicative, not of the former's
intention to extend the contract automatically,34 but merely of its
obedience to its express terms allowing the improvements. After all,
at the expiration of the lease, those improvements were to "become its
property."

Parties are free to enter into any contractual stipulation, provided it

is not illegal or contrary to public morals. When such agreement,
freely and voluntarily entered into, turns out to be disadvantageous
to a party, the courts cannot rescue it without crossing the
constitutional right to contract. They are not authorized to extricate
parties from the necessary consequences of their acts, and the fact
that the contractual stipulations may turn out to be financially
disadvantageous will not relieve the latter of their obligations.35

Respondents justify their nonpayment of rentals on the ground that

petitioners refused to accept their payments. Article 1256 of the Civil
Code, however, provides that "if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the consignation of the
thing or sum." This provision is more explicit under the Rent Control
Law,38 the pertinent portions of which are similar to the prevailing
law -- the Rental Reform Act of 200239 -- which we reproduce
hereunder:

"Section 7. Grounds for Judicial Ejectment.-Ejectment shall be

allowed on the following grounds:

"(a) Assignment of lease or subleasing of residential units in whole or

in part, including the acceptance of boarders or bedspacers, without
the written consent of the owner/lessor.

"(b) Arrears in payment of rent for a total of three (3) months:

Provided, That in the case of refusal by the lessor to accept payment
of the rental agreed upon, the lessee may either deposit, by way of
consignation, the amount in court, or with the city or municipal
treasurer, as the case may be, or in a bank in the name of and with
notice to the lessor, within one month after the refusal of the lessor to
accept payment.

"The lessee shall thereafter deposit the rental within ten days of every
current month. Failure to deposit the rentals for three (3) months
shall constitute a ground for ejectment. If an ejectment case is already
pending, the court upon proper motion may order the lessee or any
person or persons claiming under him to immediately vacate the
leased premises without prejudice to the continuation of the
ejectment proceedings. At any time, the lessor may, upon authority of
the court, withdraw the rentals deposited.

"The lessor, upon authority of the court in case of consignation or

upon joint affidavit by him and the lessee to be submitted to the city
or municipal treasurer and to the bank where deposit was made,
shall be allowed to withdraw the deposits.
xxx xxx xxx

"(e) Expiration of the period of the lease contract."40

On the other hand, the Civil Code provides as follows:

"Art. 1673. The lessor may judicially eject the lessee for any of the
following causes:

"(1) When the period agreed upon, or that which is fixed for the
duration of lease under Articles 1682 and 1687, has expired;

"(2) Lack of payment of the price stipulated;

"(3) Violation of any of the conditions agreed upon in the contract;

"(4) When the lessee devotes the thing leased to any use or service not
stipulated which causes the deterioration thereof; or if he does not
observe the requirement in No. 2 of Article 1657, as regards the use
thereof.

"The ejectment of tenants of agricultural lands is governed by special

laws."