G.R. No. 181984. March 20, 2017.
Republic of the Philippines (through the Privatization and Management Office), Petitioner, vs. Philippine International Corporation, Respondent.

FACTS

In 1976, the Cultural Center of the Philippines (CCP) leased a parcel of land within the CCP Complex to respondent Philippine International Corporation (PIC) under a 25-year Lease Agreement, renewable for a like period at the LESSEE’s option. The property was subsequently transferred to the Philippine National Bank (PNB) and then, pursuant to Proclamation No. 50, to the national government, which conveyed it to the Asset Privatization Trust (APT) for administration. PIC successfully litigated to have its leasehold rights recognized and annotated on the title against APT, with the Supreme Court sustaining the lower courts’ rulings. Prior to the lease’s expiration in 2001, PIC formally notified APT of its exercise of the option to renew.
APT’s successor, the Privatization and Management Office (PMO), denied PIC’s request for renewal and demanded vacation of the property. Upon PIC’s refusal, PMO filed an unlawful detainer case. The Metropolitan Trial Court ruled in favor of PIC, upholding the validity of the renewal. This decision was affirmed by the Regional Trial Court and the Court of Appeals. PMO elevated the case to the Supreme Court via a Petition for Review on Certiorari.

ISSUE

Whether PIC validly renewed the lease for another 25 years by merely exercising its option under the Lease Agreement, thereby binding PMO as APT’s successor-in-interest.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ rulings. The legal logic is anchored on the nature of an option to renew within a lease contract and the principles governing successors-in-interest. The Lease Agreement expressly granted PIC, as lessee, the sole option to renew the contract for another 25-year period under the same terms. This option was an integral part of the contract’s consideration, creating a vested right in favor of PIC upon its execution. The exercise of this option did not require a new agreement or mutual consent; a unilateral notice from PIC was sufficient to effect the renewal, as the terms were already predetermined.
PMO, created to take over APT’s assets and functions, stepped into the shoes of its predecessor. Since APT was bound by the lease and its renewal clause—a fact conclusively settled in prior litigation where APT’s petition was denied with finality—PMO is similarly bound. The principle that a successor-in-interest acquires the property subject to all existing burdens and obligations applies. PMO cannot now repudiate the lease terms that its predecessor was obligated to respect. Therefore, PIC’s valid exercise of its option resulted in a renewed lease binding on PMO.