An unacceptable unilateral decision

BR Inc. (BRI) is the owner of a land in Quezon City. Ef was BRI’s general property manager while his brother, Migs was the company’s president.

BRI, represented by Migs, leased the subject lot to Ef. The lease agreement provided that it was supposedly “effective July 1, 2003 until such time that it is replaced or amended by another resolution agreement” and “effective until such time that the parcel of land is sold.” The lease contract further obliged Ef to: (1) expressly include a 60-day pre-termination clause in his third party subleasing agreements to ensure that the property be always available for sale, and (2) furnish BRI with copies of the subleasing agreements.

Using the contract of lease, Ef entered into various sublease agreements.

Five years later, BRI informed Ef that it had rescinded the lease contract and formally demanded the return of the subject lot. Ef received the demand letter on the same day. BRI also notified Ef’s sublessees about the rescission of the lease and formally demanded the surrender of the subject lot. The letter of BRI reads as follows:

Please be advised that we have cancelled, rescinded and/or terminated the “Contract of Lease” dated July 1, 2003, over that real property xxx. In view thereof, formal demand is hereby made upon you (and all persons claiming rights under you) to vacate and surrender the property to us within fifteen (15) days from receipt of this letter.

For a peaceful and proper turnover of the premises, please coordinate with our new legal counsel xxx xxx xxx.

The following month, BRI filed a complaint for unlawful detainer against Ef and his sublessees. The complaint alleged: (1) that Ef’s subleases failed to include the mandatory 60-day pre-termination clause; (2) that it had repeatedly questioned the sublease agreements, but Ef ignored its objections because he was forestalling the sale of the property; (3) that BRI discovered that Ef had already constructed concrete structures on the subject lot—in bad faith and without its knowledge or consent—to prolong his enjoyment of the lot; (4) that Ef had been forestalling the sale of the subject lot because of the advantageous arrangement he then enjoyed; (5) that Ef’s attempts at preventing the sale of the subject lot effectively fulfilled the resolutory condition of the lease; and (6) that on Jan. 8, 2008, BRI’s Board of Directors resolved to cancel the lease with Ef pursuant to the provision that it “shall be effective July 1, 2003 and until such time that it is replaced or amended by another resolution.”

Ef denied frustrating the sale of the lot or building the improvements in bad faith. Efren also argued: (1) that BRI could not unilaterally rescind the lease contract; and (2) that assuming there was legal justification to rescind the contract—an action incapable of pecuniary estimation—then the proper forum was the RTC.

Q: Does BRI’s demand to vacate the premises have legal basis?

A: BRI’s complaint for ejectment was prematurely filed.

According to Rule 70, Section 2 of the Rules of Court, the lessor can only proceed with a summary action for ejectment upon making a sufficient demand from the lessee:

SEC. 2. Lessor to proceed against lessee only after demand. Unless otherwise stipulated, such action by the lessor shall be commenced only after demand to pay or comply with the conditions of the lease and to vacate is made upon the lessee, or by serving written notice of such demand upon the person found on the premises, or by posting such notice on the premises if no person be found thereon, and the lessee fails to comply therewith after fifteen (15) days in the case of land or five (5) days in the case of buildings.

The Rules thus requires the concurrence of two conditions. First, the lessor must first make a written demand for the lessee: (1) to pay or comply with the conditions of the lease; and (2) to vacate the premises. Second, the lessee fails to comply with the demand within the given period.

A careful examination shows that BRI did not sufficiently comply with Rule 70, Section 2. Its demand letter did not indicate that Ef breached the lease contract. There was no demand for him to pay rent or comply with any of his obligations under the lease. Instead, it merely informed him that BRI had unilaterally terminated the lease and demands the surrender of the property.

Q: Can BRI unilaterally terminate its lease agreement with Ef?

A: No,  a contracting party cannot unilaterally terminate a contract unless otherwise stipulated beforehand. A contract binds both contracting parties; its validity cannot be left to the will of one of them. To hold otherwise would offend the mutuality of contracts.

Q: Was BRI’s theory that the construction of Ef of concrete structures on the property without BRI’s permission, which effectively forestalled the sale of the property, constructively fulfilled the resolutory condition of the lease?

A: No. There is no logical connection between the construction of concrete structures on the property and BRI’s inability to sell it. The argument is a non sequitur. Moreover, the lease contract itself specifically recognized the lessee’s right to construct on the property:

5. Improvements—All construction improvements introduced by lessee shall be to his own account. It is also understood that all materials used in the improvements shall be turned over to lessee upon the sale of the property based on a submitted control listing of all approved improvements and their respective costs at the end of the construction period.

BRI’s approval is only relevant with respect to Ef’s right to the turnover of materials used upon the sale of the property. Other than that, the contract does not oblige Ef to secure BRI’s consent prior to constructing improvements.

Furthermore, Article 1657 of the Civil Code enumerates Efren’s statutory obligations as a lessee:

Article 1657. The lessee is obliged:

(1) To pay the price of the lease according to the terms stipulated;

(2) To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place;

(3) To pay expenses for the deed of lease.

BRI failed to show how any of Ef’s constructions go against the permissible use of the property based on its nature.

Accordingly, BRI had no basis to unilaterally terminate the lease without offending the mutuality of contracts.

Q: Did the lease agreement expired when BRI adopted and passed a board resolution terminating the lease agreement?

A: No. There is no merit in BRI’s contention that the contract which was “effective July 1, 2003 and until such time that it is replaced or amended by another resolution” had expired because the Board of Directors had already issued a board resolution terminating the lease. BRI interprets the term “resolution” to mean a board resolution from BRI. This erroneous interpretation is offensive to the mutuality and obligatory force of contracts.

The lease contract states:

8. Effectivity—This agreement shall be effective July 1, 2003 and until such time that it is replaced or amended by another resolution agreement.

It is obvious that BRI has conveniently omitted the word “agreement” whenever it cited the effectivity of the contract.  A lease contract is onerous in character containing reciprocal obligations; any ambiguities in its terms are interpreted in favor of the greatest reciprocity of interests.  Accordingly, “resolution” or “resolution agreement” should be interpreted to mean a subsequent agreement between the lessor and the lessee instead of a unilateral resolution from the lessor’s board of directors.

Q: Is there a ground to evict Ef?

A: None. The summary proceeding for unlawful detainer contemplates a situation where the defendant’s possession, while initially lawful, had legally expired. Under the Civil Code, a lessor may judicially eject the lessee for any of the following causes:

Article 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 leases 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 law.

The presence of any of these circumstances authorizes the lessor to directly resort to the MTC/MeTC for summary ejectment. The lessor is no longer required to file a separate complaint for rescission before the RTC. However, none of these circumstances is present in this case.

First, the contract did not specifically fix the period of the obligation. Therefore, one cannot conclude that the lease had already expired. While the nature and the circumstances of the contract make it apparent that a period was intended, this does not authorize the lessor to unilaterally conclude that the period had lapsed or to summarily eject the lessee. The Civil Code only grants the lessor the right to ask the courts to fix the period.

Second, the complaint did not allege that Ef had been remiss in the payment of the stipulated rent.

Third, BRI failed to establish that Ef committed a substantial breach—as opposed to a casual breach—of his legal obligations (both under the contract and under Article 1657 of the Civil Code) that would defeat the very object of the parties in making the agreement and warrant the rescission of the contract.

Lastly, BRI failed to show that Ef had dedicated the property to a use that is contrary to its commercial nature and that caused its deterioration. On the contrary, Ef had maintained the property and made improvements on it.

Source: Quesada vs. Bonanza Restaurants Inc., G.R. No. 207500, Nov. 14, 2016

Ma. Soledad Deriquito-Mawis is Dean, Lyceum of the Philippines University; Chairman, Philippine Association of Law Schools; founder, Mawis Law Office