Buce vs. Court of Appeals, 332 SCRA 151, G.R. No. 136913.
May 12, 2000
DOCTRINE: Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been
established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other
circumstances it should appear that the period has been established in favor of one or of the other.
FALLO: WHEREFORE, the instant petition is partly GRANTED. The assailed decision of the Court of Appeals is
REVERSED insofar as it ordered the petitioner to immediately vacate the leased premises, without prejudice,
however, to the filing by the private respondents of an action for the recovery of possession of the subject
property. No costs. SO ORDERED.
SUMMARY: 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.
FACTS:
Petitioner Anita C. Buce leased a 56-square meter parcel of land located at 2068 Quirino Avenue,
Pandacan, Manila. The lease contract provided for a period of fifteen (15) years, commencing on June
1, 1979, and ending on June 1, 1994, "subject to renewal for another ten (10) years, under the same
terms and conditions."
Private respondents included spouses Bernardo C. Tiongco and Araceli Tiongco, along with spouses
Dionisio Tiongco and Lucila Tiongco, and Jose M. Tiongco acting in an administrative capacity.
Petitioner Buce constructed a building on the leased parcel and paid a monthly rental of P200 as
initially agreed.
Private respondents, via their administrator Jose Tiongco, later demanded a gradual increase in the
rental rate, which eventually reached P400 in 1985.
For the months of July and August 1991, petitioner remitted P1,000 as monthly rental, reflecting an
escalation in the payments.
Private respondents’ counsel informed petitioner that, pursuant to the Rent Control Law, the rental
effective January 1992 was to be increased to P1,576.58.
Petitioner tendered checks dated between October 1991 and January 1993 for only P400 each,
payable to Jose Tiongco, which private respondents refused to accept.
Petitioner filed a complaint for specific performance before the RTC of Manila, praying that private
respondents be compelled to accept the rent as originally agreed and to honor the 15-year lease with
a renewal provision.
Private respondents’ answer argued that the petitioner had already paid a higher rental of P1,000 for
certain months, the contractual phrase indicating renewal did not imply an automatic renewal, but
rather a renewal subject to mutual agreement and their demand for arrears was justified based on
the increased rental rate computed pursuant to the Rent Control Law.
The RTC declared the lease contract automatically renewed for an additional ten (10) years, basing
its decision on the contractual stipulation permitting the lessee to construct improvements, the filing
of the complaint by petitioner almost one year before the initial term’s expiration and a finding of
novation due to the gradual rental increases from P200 to P1,000.
The Court of Appeals reversed the RTC’s decision by holding that the lease expired on June 1, 1994,
without a valid renewal, as mutual agreement is required for renewal. The petitioner's tender of
checks for P400 was barred by the acceptance of an increased rental, amounting to a novation of the
original lease terms.
Consequently, petitioner was ordered to immediately vacate the premises and pay rental arrearages
based on a revised rental rate of P1,000 per month.
ISSUE/S: Whether the phrase “subject to renewal for another ten (10) years, under the same terms and
conditions” intended an automatic renewal of the lease contract or merely an option to renew by mutual
agreement.
RULING: NO.
The phrase "subject to renewal for another ten (10) years" is unclear on whether the parties contemplated
an automatic renewal or extension of the term, or just an option to renew the contract; and if what exists is
the latter, who may exercise the same or for whose benefit it was stipulated. There is nothing in the
stipulations in the contract and the parties' actuation that shows that the parties intended an automatic
renewal or extension of the term of the contract. The fact that the lessee was allowed to introduce
improvements on the property is not indicative of the intention of the lessors to automatically extend the
contract.
In the case at bar, it was not specifically indicated who may exercise the option to renew, neither was it
stated that the option was given for the benefit of herein petitioner. Thus, pursuant to the Fernandez ruling
and Article 1196 of the Civil Code, the period of the lease contract is deemed to have been set for the benefit
of both parties. Renewal of the contract may be had only upon their mutual agreement or at the will of both
of them. Since the private respondents were not amenable to a renewal, they cannot be compelled to
execute a new contract when the old contract terminated on 1 June 1994. It is the owner-lessor's prerogative
to terminate the lease at its expiration. The continuance, effectivity and fulfillment of a contract of lease
cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between
continuing the payment of the rentals or not, completely depriving the owner of any say in the matter.
Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee
since the life of the contract would be dictated solely by the lessee.
