CJH Develpoment Corporation v. Ancieto G.R. No. 224006 and G.R. No. 224472 06July 2020 Leonen, J.:

CJH Develpoment Corporation v. Ancieto

G.R. No. 224006 and G.R. No. 224472

06July 2020 Leonen, J.: 

Third Division

 

Nature of the Action: These are two consolidated petitions for review assailing the Decision and Resolution of the Court of Appeals which reversed the Regional Trial Court’s Decision and found CJH Development liable to pay Ancieto the value of the personal properties seized by the corporation when the parties’ Leasse Contract expired.

Facts:

Ancieto owned El Rancho Café and Restaurant. CJH Development had allowed her to use a junkyard within the vicinity on which she built restaurant from October to December 2003. Subsequently, they formally entered a Lease Contract. When the lease expired, it was renewed on a monthly basis. Then, they entered into another Lease contract that would last until November 2006.

Pertinently, under the lease contract, all permanent improvements made by Ancieto shall form an integral part of the premises and become CJH Developmet’s property upon the termination of the lease. Moreover, when the contract is terminated, Ancieto must promptly deliver the premises to CJH devoid of occupants, furniture, articles, and effects of any kind; otherwise, CJH Development can enter the premises and take inventories of Aniceto's merchandise. The merchandise will then be placed in the bodega for Aniceto's retrieval. When the lease contract’s term lapsed, the same was extended by the parties for 6 months. But the second lease expired and Ancieto asked for another extension but the same was denied. Nevertheless, El Rancho continued to operate on a monthly basis, with Aniceto paying advance rentals up to February 28, 2008. However, she was informed to vacate the premises. Then she asked for extension but still was denied. Thus, Ancieto filed a complaint seeking to enjoin the closure and demolition of El Rancho before the RTC. It granted TRO but rdenied the issuance of WPI. While Ancieto was seeking for reconsideration, El Rancho was demolished. Accordingly, the RTC denied her MR for mootness. Then the case became a complaint for damages. 

On appeal, the CA set aside RTC’s decision. Both parties appealed to the Supreme Court. Hence, this consolidated petition.

Issue:

Whether the parties on the lease contract may stipulate clauses

Ruling:

When parties enter into contracts, they are free to stipulate on the terms and conditions of their agreement as they may deem convenient. Contracts have the force of law between the contracting parties. Thus, whatever stipulations agreed upon in them must be complied with in good faith. 

However, the freedom to stipulate is not absolute. Under Article 1306 of the Civil Code, parties cannot agree on stipulations that are "contrary to law, morals, good customs, public order, or public policy." It states:

ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.89

A contract of lease is a special form of contract in civil law. The Civil Code outlines a number of provisions that guide the parties and limit the stipulations that may be agreed upon in the lease contract. It specifies the rights and obligations of the lessor and the lessee, as well as the rules on the payment and ejectment.90

Under the Civil Code provisions on lease, when the lease has a definite period, it ceases on the day fixed without need for a demand from the lessor.

The lessee, then, shall return the thing leased, as they received it, to the lessor.

 

However, if at the end of the contract, the lessor allows the lessee to enjoy the lease for 15 days, there arises an implied lease and the terms of the original contract are revived. 93 It is presumed by law that the lessor is amenable to its renewal.94 When there is an implied lease, the lease will continue based on the period of payment.95 For instance, if the lease is paid monthly, the implied lease would only be renewed every month. The implied lease is a lease with a definite period, and it is "terminable at the end of each month upon demand to vacate by the lessor."

On the other hand, if the lessor refuses to renew the lease, it is necessary for him or her to furnish the lessee with a formal notice to vacate the premises. If the lessee continues to possess the premises against the lessor's will, the lessee would be holding the property illegally and a judicial action may be filed. Moreover, the lessee "shall be subject to the responsibilities of a possessor in bad faith."

Under Article 1673, "[t]he lessor may judicially eject the lessee" in the following instances: (1) if the period agreed upon has expired; (2) if the lessee fails to pay the price stipulated; (3) if the lessee violates any of the conditions of the contract; and (4) if the thing leased suffered deterioration due to use or service not stipulated. 

However, judicial action is not always required to eject the lessee.

In Consing v. Jamandre, the petitioner-sublessee of a hacienda in Negros Occidental allegedly failed to pay the respondent-sublessor. Because of this, the respondent regained possession of the hacienda, relying on a provision of their lease contract stating that when the lessee fails to comply with any of its term and conditions, the lessor is authorized "to take possession of the leased premises including all its improvements without compensation to the [sublessee] and without necessity of resorting to any court action[.]" The petitioner went to this Court, assailing its validity. 

This Court ruled that such stipulation in a lease contract, which authorized the sublessor to take possession of the premises without judicial action, is valid and binding because the stipulation is in the nature of a resolutory condition. It held:

This stipulation is in the nature of a resolutory condition, for upon the exercise by the Sub-lessor of his right to take possession of the leased property, the contract is deemed terminated. This kind of contractual stipulation is not illegal, there being nothing in the law proscribing such kind of agreement. As held by this Court in Froilan vs. Pan Oriental Shipping Co:

Under Article 1191 of the Civil Code, in case of reciprocal obligations, the power to rescind the contract where a party incurs in default, is impliedly given to the injured party. Appellee maintains, however, that the law contemplates of rescission of contract by judicial action and not a unilateral act by the injured party; consequently, the action of the Shipping Administration contravenes said provision of the law. This is not entirely correct, because there is also nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court for rescission of the contract. As already held, judicial action is needed where there is absence of special provision in the contract granting to a party the right of rescission."

Judicial permission to cancel the agreement was not, therefore, necessary because of the express stipulation in the contract of sub-lease that the sub-lessor, in case of failure of the sub-lessee to comply with the terms and conditions thereof, can take-over the possession of the leased premises, thereby cancelling the contract of sub-lease. Resort to judicial action is necessary only in the absence of a special provision granting the power of cancellation.

Consing teaches that while Article 1673 provides for judicial action to eject the lessee, it is only required if the lease contract has no special provision granting the cancellation of the lease.

Viray v. Intermediate Appellate Court1 reiterated this doctrine. There, a similar provision, which authorized the sublessor repossession without court action, was assailed for contravening public policy. In upholding its validity, this Court held that there was no law against extrajudicial ejectment. In fact, stipulations may authorize the use of "all necessary force" or "reasonable force" for the sublessor to repossess the lessor of the premises:

This Court ruled that the stipulation "is in the nature of a resolutory condition, for upon the exercise by the Sub-lessor of his right to take possession of the leased property, the contract is deemed terminated;" and that such a contractual provision "is not illegal, there being nothing in the law proscribing such kind of agreement."