G.R. No.

161718 December 14, leasehold rights over a portion of Lot 2- aforementioned Letters dated March 3
2011 A and 10, 1992 since these were
MANILA INTERNATIONAL AIRPORT purportedly sent by Velayo without
AUTHORITY, Petitioner, Accordingly, petitioner and Velayo authority from respondent’s Board of
vs. Export executed a Contract of Lease Directors. Respondent expressed its
DING VELAYO SPORTS CENTER, dated November 26, 1974 pertaining to interest in continuing the lease of the
INC., Respondent. the aforementioned leased portion of subject property for another 25 years
Lot and tendered to petitioner a manager’s
FACTS: check in the amount of ₱8,821.00 as
Before Us is a Petition for Review under In turn, Velayo Export executed a payment for the lease rentals for the
Rule 45 of the Rules of Court of the Transfer of Lease Rights dated April 27, subject property from December 1991
Decision1 dated January 8, 2004 of the 1976 by which it conveyed to until March 1992.
Court Appeals respondent, for the consideration of
₱500,000.00, its leasehold rights over Petitioner entirely disregarded the
On February 15, 1967, petitioner (then an 8,481-square meter area (subject claims of respondent and threatened to
still called the Civil Aeronautics property) out of the 15,534-square take-over the subject property.
Administration or CAA) and Salem meter portion it was leasing from
Investment Corporation (Salem) petitioner. As a result, petitioner and On March 30, 1992, respondent filed
entered into a Contract of Lease respondent executed another Contract against petitioner before the RTC a
whereby petitioner leased in favor of of Lease5 dated May 14, 1976 covering Complaint for Injunction, Consignation,
Salem a parcel of land the subject property. and Damages with a Prayer for a
Temporary Restraining Order.23
The term of the lease and renewal Respondent began occupying the Respondent essentially prayed for the
thereof as stipulated upon by petitioner subject property and paying petitioner RTC to order the renewal of the
and Salem are as follows: the amount of ₱2,205.25 per month as Contract of Lease between the parties
rental fee. Respondent then for another 25-year term counted from
3. That the term of the lease shall be for constructed a multi-million plaza with a February 15, 1992.
a period of Twenty-Five (25) years, three-storey building on said property.
commencing from the date of receipt of Respondent leased spaces in the In its Answer,25 petitioner contended
approval of this Contract by the building to various business proprietors. that its Contract of Lease with
Secretary of Public Works and respondent was already terminated on
Communications, and at the option of Petitioner eventually issued February 15, 1992, the expiration date
the LESSEE, renewable for another Administrative Order (AO) No. 4, fixing explicitly stated under paragraph 4 of
Twenty-Five (25) years. various rates for the lease rentals of its the same Contract. Petitioner was not
properties bound to renew the Contract of Lease
It is understood, that after the first 25 with respondent. The renewal
years lease, the ownership of, and full allegedly effected an increase in the provision under paragraph 17 of the
title to, all the buildings and permanent lease rental of respondent for the Contract was not automatic but
improvements introduced by the subject property, as provided for in merely directory and procedural and
LESSEE on the leased premises paragraph 13 of the Contract of Lease that, in any event, Velayo, the former
including those introduced on the Golf dated May 14, 1976 between petitioner President of respondent, already
Driving Range shall automatically vest and respondent. However, said conceded to the non-renewal of the
in the LESSOR, without cost. issuances were subjected to review for Contract.
revision purposes and their
Upon the termination of the lease or implementation was suspended. Still, (17. The LESSEE, if desirous of
should the LESSEE not exercise this petitioner, through a letter dated continuing his lease, should notify
option for renewal, the LESSEE shall September 23, 1986, required the LESSOR sixty (60) days prior to
deliver the peaceful possession of all respondent to pay a moratorium rental expiration of the period agreed upon
the building and other permanent at the rate of ₱5.00 per square meter for the renewal of the Contract of
improvements herein above referred to, rate per month or a total of ₱42,405.00 Lease.)
with the understanding that the every month.
LESSEE shall have the right to remove Petitioner likewise invoked paragraph
from the premises such equipment, In a Letter17 dated October 18, 1986, 15 of the Contract of Lease, i.e., its right
furnitures, accessories and other respondent opposed the to revoke the said Contract in case of
articles as would ordinarily be classified implementation of any increase in its violation of any of the provisions thereof
as movable property under pertinent lease rental for the subject property. by respondent.
provisions of law.
However, around the same time, (15. This contract of lease may be
Subsequently, in a Transfer of Lease Samuel Alomesen (Alomesen) became terminated by other party upon thirty
Rights and Existing Improvements the new President and General (30) days notice in writing. Failure on
dated September 30, 1974, Salem Manager of respondent, replacing the part of the LESSEE to comply
conveyed in favor of Ding Velayo Export Velayo. Alomesen, acting on behalf of with any of the provisions of this
Corporation (Velayo Export), for the respondent, sent petitioner a Letter22 lease contract or any violation of any
consideration of ₱1,050,000.00, its dated March 25, 1992, revoking the rule or regulations of the Airport
shall give the LESSOR the right to The ultimate purpose is to render void a
revoke this contract effective thirty II. The trial court gravely erred in contract containing a condition which
(30) days after notice of revocation ordering the renewal of the contract of makes its fulfillment dependent solely
without need of judicial demand.) lease despite of the fact that it has no upon the uncontrolled will of one of the
legal authority to do so. contracting parties.
By way of counter-claim, petitioner
demanded that respondent pay the total III. The trial court gravely erred in An express agreement which gives
outstanding balance of its lease rentals declaring that [respondent] did not the lessee the sole option to renew
for the subject property and turn-over violate the terms and conditions of the the lease is frequent and subject to
lease rentals it had collected from sub- contract. statutory restrictions, valid and
lessees beginning February 15, 1992. binding on the parties. It is a purely
IV. The trial court gravely erred in executory contract and at most
After the preliminary hearing, the RTC declaring that [petitioner’s] act of confers a right to obtain a renewal if
issued a Writ of Preliminary effecting the increase in the rental there is compliance with the
Injunction26 against petitioner and at during the stipulated lifetime of the conditions on which the right is
the same time, granted the motion of contract has no valid basis. made to depend.
respondent for the consignment of their
monthly lease rentals for the subject V. The trial court gravely erred in not Paragraph 17 of the Contract of
property with the RTC. and at the same finding that [petitioner] is entitled to its Lease dated May 14, 1976 between
time, granted the motion of respondent counterclaim.45 petitioner and respondent solely
for the consignment of their monthly granted to respondent the option of
lease rentals for the subject property The Court of Appeals promulgated its renewing the lease of the subject
with the RTC. Decision on January 8, 2004, finding no property, the only express requirement
reversible error in the appealed was for respondent to notify petitioner of
In its Decision dated October 29, 1999, judgment of the RTC and decreeing as its decision to renew the lease within 60
the RTC ruled in favor of respondent, follows: days prior to the expiration of the
disposing thus: original lease term. It has not been
WHEREFORE, finding no reversible disputed that said Contract of Lease
WHEREFORE, judgment is hereby error committed by the trial court, the was willingly and knowingly entered into
rendered in favor of [respondent] and instant appeal is hereby DISMISSED, by petitioner and respondent. Thus,
against [petitioner]. and the assailed decision is hereby petitioner freely consented to giving
AFFIRMED.46 respondent the exclusive right to
Accordingly, [petitioner] is hereby choose whether or not to renew the
ordered to: Hence, the instant Petition for Review lease. As we stated in Allied
Banking, the right of renewal
1. Grant renewal of the lease contract ISSUE: constitutes a part of the interest of
for the same term as stipulated in the WON The trial court gravely erred in respondent, as lessee, in the subject
old contract and the rental to be based declaring that [respondent] is entitled to property, and forms a substantial
on the applicable rate of the time or a renewal of the contract of lease and integral part of the lease
renewal; agreement with petitioner.
HELD:
2. To respect and maintain NO. Records show that respondent had duly
[respondent’s] peaceful possession of complied with the only condition for
the premises; As we have already explained in Allied renewal under Section 17 of the
Banking Corporation v. Court of Contract of Lease by notifying petitioner
3. To accept the rental payment Appeals Article 1308 of the Civil Code 60 days prior to the expiration of said
consigned by the [respondent] to the expresses what is known in law as the Contract that it chooses to renew the
court beginning December 1991 principle of mutuality of contracts. It lease.
onward until and after a renewal has provides that "the contract must bind
been duly executed by both parties; both the contracting parties; its validity We cannot now allow petitioner to
or compliance cannot be left to the will arbitrarily deny respondent of said right
4. To pay [respondent] as and by way of one of them." after having previously agreed to the
of attorney’s fees the sum of grant of the same.
₱500,000.00; and This binding effect of a contract on both
parties is based on the principle that the Being consistent with the foregoing
5. To pay the cost of suit. obligations arising from contracts have principles, we sustain the interpretation
the force of law between the contracting of the RTC of paragraph 17 of the
Petitioner appealed the RTC judgment parties, and there must be mutuality Contract of Lease dated May 14, 1976
before the Court of Appeals and between them based essentially on between petitioner and respondent, to
assigned these errors: their equality under which it is wit:
repugnant to have one party bound by
I. The trial court gravely erred in the contract while leaving the other free [Paragraph 17 of the Contract of Lease
declaring that [respondent] is entitled to therefrom. dated May 14, 1976] admits several
a renewal of the contract of lease. meanings. In simpler terms, the phrase,
i.e., "if desirous of continuing his lease, the lease between Velayo Export and
may be simply restated, i.e., if he wants CAA.
to go on with his lease, considering the
word `CONTINUE’ in its verb form In sum, the renewed contract of lease of
ordinarily means – to go on in present the subject property between petitioner
state, or even restated in another way – and respondent shall be based on the
if desirous of extending his lease, same terms and conditions as the
because the word `continue’ in its verb original contract of lease.
form also means – extend uniformly."
The "original contract of lease" does not
In case the lessee chooses to renew the pertain to the Contract of Lease dated
lease but there are no specified terms May 14, 1976 between petitioner and
and conditions for the new contract of respondent alone, but also to the
lease, the same terms and conditions Contract of Lease dated February 15,
as the original contract of lease shall 1967 between petitioner (then still
continue to govern, as the following called CAA) and Salem, as well as the
survey of cases in Allied Banking would Contract of Lease dated November 26,
show: 1974 between petitioner and Velayo
Export – all three contracts being
[i]n the case of Hicks v. Manila Hotel inextricably connected.
Company, a similar issue was resolved
by this Court. It was held that 'such a WHEREFORE, the instant Petition is
clause relates to the very contract in hereby DENIED for lack of merit. The
which it is placed, and does not permit Decision dated January 8, 2004 of the
the defendant upon the renewal of the Court Appeals in CA-G.R. CV No.
contract in which the clause is found, to 68787, which affirmed the Decision
insist upon different terms than those dated October 29, 1999 of Branch 111
embraced in the contract to be of the RTC of Pasay City in Civil Case
renewed'; and that 'a stipulation to No. 8847, is hereby AFFIRMED.
renew always relates to the contract in
which it is found and the rights granted
thereunder, unless it expressly provides
for variations in the terms of the contract
to be renewed.'

“TRANSFERS OF LEASEHOLD
RIGHTS SUMMARY”
Specifically, the extraneous source of
the lease contract in question could be
the original and renewed contract of
lease by and between Salem
Investment Corporation and CAA – the
predecessor-in-interest of [petitioner] –
executed on February 10, 1967 (Exh.
"M"). Under the said lease contract
between CAA and Salem, the term is for
a period of twenty-five (25) years
renewable for another 25 years at the
option of the lessee – Salem (Exh. "Y-
1"). Later, with the approval of CAA,
Salem transferred its leasehold rights
over a portion of the land leased to Ding
Velayo Export Corporation on
September 30, 1974 (Exh. "N") and in
turn Velayo Export transferred its
leasehold rights over a portion of the
leased land transferred to it by Salem to
Velayo Sports Complex, Inc. –
[respondent] herein – on April 29, 1976
(Exh. "O"). Thus, on May 14, 1976,
[respondent] and CAA, predecessor-in-
interest of [petitioner], concluded the
lease agreement in question with a term
equivalent to the unexpired portion of