G.R. No. L-55187 April 28, 1983
LEVI A. LEDESMA and SALUD B. LEDESMA, plaintiffs-appellants, vs. BENJAMIN JAVELLANA, defendant-appellee.

FACTS

Plaintiffs-appellants, the registered owners of seven parcels of land, entered into a ten-year lease contract with defendant-appellee on August 3, 1968, with a stipulated annual rental of P30,000. The contract contained a provision granting the lessee an option to renew the lease for another ten years. On October 21, 1976, the appellee formally notified the appellants of his intention to exercise this renewal option. The appellants agreed to the renewal in principle but refused to be bound by the original terms, particularly the rental rate, insisting that new terms must be negotiated.
Due to the impasse, the appellants filed an action in the Court of First Instance of Iloilo seeking a judicial declaration that the option clause meant renewal was subject to new terms mutually agreed upon by the parties. The trial court defined the sole legal issue as the proper interpretation of the renewal provision and ruled in favor of the appellee. It declared that the exercise of the option to extend the lease for another ten years would be under the same rentals, terms, and conditions as the original contract. The appellants appealed, assigning errors primarily contending that renewal required new agreements on terms.

ISSUE

Whether the exercise of the option to renew the lease contract for another ten years should be under the same terms and conditions as the original contract.

RULING

Yes, the renewal shall be under the same terms and conditions. The Supreme Court affirmed the trial court’s decision. The legal logic is anchored on settled principles of contract interpretation for renewal clauses. Where a contract contains a general covenant to renew or extend without specifying new or different terms, the law implies a renewal upon the same terms as the original lease. This principle, established in Hicks vs. Manila Hotel Company (28 Phil. 325), holds that a renewal stipulation relates to the contract in which it is embedded unless it expressly provides for variations.
The Court rejected the appellants’ argument that the absence of an explicit statement for “same terms” meant terms were negotiable. It noted that the converse argument was equally plausible but found greater logic in favoring the lessee’s interpretation in cases of uncertainty. Consistent with jurisprudence, such as Cruz vs. Alberto (39 Phil. 99), and American law, any ambiguity in a lease renewal provision is construed in favor of the tenant, as the landlord had the power to stipulate favorable terms initially but neglected to do so. The Court also declined to apply equitable relief to adjust the rental due to inflation or increased taxes, stating equity cannot rescue a party from a bad bargain or reinterpret clear contractual terms; the proper remedy for a mutual mistake would be an action for reformation, which was not pleaded or proven in this case.