G.R. No. 100957 January 27, 1994
COCA-COLA BOTTLERS PHILIPPINES, INC., petitioner, vs. THE COURT OF APPEALS, CESAR BAUTISTA AND THE HEIRS OF PACIANO B. BAUTISTA, respondents.

FACTS

Petitioner Coca-Cola Bottlers Philippines, Inc. (Coca-Cola) negotiated with private respondents Cesar Bautista and the heirs of Paciano Bautista to lease their land in Malabon to establish a warehouse and sales office. The lessors initially wanted a five-year lease, but Coca-Cola insisted on a ten-year term (October 1, 1982 to September 30, 1992) for its business plans. The executed contract stipulated that Coca-Cola would construct a warehouse worth at least P300,000, and all improvements would belong to the lessors upon termination. The land was partially underwater, and Coca-Cola, aware of this condition (as its sales manager even advised against a high rental price because of it), filled it with ten truckloads of materials before construction. After the onset of the rainy season in June 1983, the premises began sinking, with mud seeping and vehicles getting stuck. Coca-Cola undertook remedial measures, engaged contractors, and consulted a soil testing firm, which estimated very high costs for site development without assurance of success. Coca-Cola then decided to vacate and, in December 1983, informed the lessors of its intention to terminate the lease. The lessors rejected the proposal. After Coca-Cola stopped paying rentals, the lessors filed a complaint for specific performance and damages. The trial court ordered Coca-Cola to pay arrears and, if it refused to honor the lease, to pay unrealized rental income. The Court of Appeals affirmed the decision. Coca-Cola, in its petition, argued it was denied the enjoyment of the lease, that the lessors were exempted from their warranty against hidden defects, and that relevant evidence was ignored.

ISSUE

Whether the lessors (private respondents) had the obligation to make the leased land fit for Coca-Cola’s intended use as a warehouse/sales office and whether Coca-Cola was justified in pre-terminating the lease contract.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision with modification on attorney’s fees. The Court held that the lessors had no obligation to make the land fit for Coca-Cola’s intended use under the circumstances. The factual findings of the Court of Appeals—that Coca-Cola was fully aware of the land’s condition as partially underwater before entering the lease, initiated the negotiations, and undertook the filling and construction—are conclusive. The obligation under Article 1654(1) of the Civil Code for the lessor to deliver the thing in a condition fit for the use intended was satisfied when the lessors delivered the land, a “flat surface,” as agreed. The contract placed the responsibility of construction on Coca-Cola as the lessee/builder; thus, it was Coca-Cola’s duty to ensure the soil could support its structures. The lessors did not construct the warehouse; they merely leased the land. Therefore, there was no breach of warranty against hidden defects, and the lessors’ refusal to pre-terminate was justified. Coca-Cola’s business losses, while unfortunate, did not constitute a legal ground to breach the contract absent any actionable wrong by the lessors. The award of attorney’s fees was reduced from P50,000 to P30,000.