G.R. No. 169438 ; January 21, 2010
Romeo D. Mariano, Petitioner, vs. Petron Corporation, Respondent.

FACTS

On 5 November 1968, the Aure Group leased a parcel of land in Tagaytay City to ESSO Standard Eastern, Inc. (ESSO Eastern), a foreign corporation doing business in the Philippines under the name “Esso Standard Philippines, Inc.” (ESSO Philippines). The lease was for 90 years and contained an assignment veto clause prohibiting assignment without prior consent, with exceptions for certain affiliated corporations. On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National Oil Corporation (PNOC). The Aure Group was not informed. ESSO Philippines later changed its name to Petrophil Corporation and then to Petron Corporation (Petron). On 18 November 1993, petitioner Romeo D. Mariano bought the property from the Aure Group, with the title annotated with ESSO Eastern’s lease. On 17 December 1998, Mariano sent Petron a notice to vacate, claiming Presidential Decree No. 471 reduced the lease term to 25 years, ending in 1993, and alternatively that the 1977 sale constituted an unconsented assignment breaching the contract. Petron refused to vacate. Mariano filed a suit for rescission and recovery of possession on 18 March 1999. The parties submitted a Joint Motion for Judgment stipulating that PNOC acquired ownership of ESSO Philippines, “including its leasehold right over the land in question, through the acquisition of its shares of stocks.” The trial court ruled for Mariano, rescinding the contract and ordering Petron to vacate, finding an unconsented assignment created an implied new lease terminable upon notice. The Court of Appeals reversed, upholding the lease contract until 2058, finding no corporate veil piercing and that the suit was barred by prescription. Mariano appealed to the Supreme Court.

ISSUE

Whether the lease contract subsists between petitioner Romeo D. Mariano and respondent Petron Corporation.

RULING

Yes, the lease contract subsists. The Supreme Court affirmed the Court of Appeals’ decision. The Court held that ESSO Eastern’s sale of ESSO Philippines to PNOC included the assignment of ESSO Eastern’s leasehold right over the property, breaching the assignment veto clause due to lack of the Aure Group’s prior consent. The Court pierced the corporate veil, noting ESSO Philippines was a mere alter ego or branch of ESSO Eastern for purposes of the contract, as ESSO Eastern admitted to doing business under that name and leased the property for ESSO Philippines’ use. However, the breach did not automatically terminate the contract; it merely gave the lessor a cause of action for ejectment under Article 1673(3) of the Civil Code. The Aure Group’s and later Mariano’s continued acceptance of lease payments despite knowledge of the breach (evidenced by name changes) constituted a waiver of the right to eject. Furthermore, Mariano’s suit, filed nearly 22 years after the 1977 assignment and almost six years after he bought the property, was barred by prescription under Article 1144(1) of the Civil Code, which sets a 10-year prescriptive period for actions upon a written contract. The petition was denied.