G.R. No. 124290 January 16, 1998
ALLIED BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, HON. JOSE C. DE GUZMAN, OSCAR D. TAN-QUECO, LUCIA D. TANQUECO-MATIAS, RUBEN D. TANQUECO and NESTOR D. TANQUECO, respondents.

FACTS

Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned a lot in Quezon City. On 30 June 1978, they leased the property to petitioner Allied Banking Corporation (ALLIED) for a term of fourteen (14) years commencing from April 1, 1978. Provision No. 1 of the lease contract stated it “may be renewed for a like term at the option of the lessee.” ALLIED built a concrete building on the property for its branch office. In February 1988, the Tanqueco spouses executed a deed of donation over the property in favor of their four children, the private respondents. On 13 February 1991, a year before the lease expired, the Tanquecos notified ALLIED they were no longer interested in renewing the lease. ALLIED replied it was exercising its option to renew under the same terms. The parties failed to agree on new terms. When the lease expired in 1992, private respondents demanded that ALLIED vacate. ALLIED asserted its option to renew, consigned advance rental payments in court, and an ejectment case was filed. The Metropolitan Trial Court declared Provision No. 1 void for violating the principle of mutuality under Article 1308 of the Civil Code, a decision affirmed by the Regional Trial Court and the Court of Appeals. On 20 February 1993, while the case was pending in the Court of Appeals, ALLIED vacated the premises.

ISSUE

1. Whether a stipulation in a contract of lease that it “may be renewed for a like term at the option of the lessee” is void for being potestative or violative of the principle of mutuality of contracts under Article 1308 of the Civil Code, and what is the meaning of said clause.
2. Whether a lessee has the legal personality to assail the validity of a deed of donation executed by the lessor over the leased premises.

RULING

1. The stipulation is valid and binding. Article 1308 of the Civil Code expresses the principle of mutuality, which renders void a contract whose fulfillment depends solely on the uncontrolled will of one party. However, an express agreement giving the lessee the sole option to renew the lease is valid. The option is part of the consideration of the contract. While binding only on the lessor and exercisable only by the lessee, it does not lack mutuality because the lessor was free to give or not give the option. Once the lessee exercises the option and the lessor accepts, both parties are bound by the new lease agreement, and mutuality obtains. The cases of Lao Lim v. Court of Appeals and Garcia v. Rita Legarda, Inc., cited by the lower courts, are inapplicable as they involve different contractual stipulations. Regarding the clause’s meaning, the phrase “for a like term” refers to the period. Since the contract is silent on the terms and conditions of the renewed lease, the renewal is upon the same terms and conditions as the original lease, following the principle that a general covenant to renew implies renewal upon the same terms.
2. The lessee lacks the legal personality to assail the validity of the deed of donation. A person who is not a party to a contract and for whose benefit it was not expressly made cannot maintain an action upon it, even if its performance would incidentally affect him, except when he is prejudiced in his rights with respect to one of the contracting parties and can show the detriment. No such detriment was shown in this case.
WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE. Considering that petitioner ALLIED BANKING CORPORATION already vacated the leased premises as of 20 February 1993, the renewed lease contract is deemed terminated as of that date. However, petitioner is required to pay rentals to respondent lessors at the rate provided in their existing contract, subject to computation in view of the consignment in court of P68,400.00 by petitioner, and of such other amounts it may have deposited or advanced in connection with the lease.