G.R. No. 125497 ; November 20, 2000
UNICANE FOOD PRODUCTS MANUFACTURING, INC., petitioner, vs. HON. COURT OF APPEALS, SPOUSES PABLO & FELISA MANESE, SPOUSES NICANOR & LUTGARDA VELASQUEZ and CICERON MANESE, respondents.

FACTS

Petitioner Unicane entered into a 15-year lease contract over a parcel of land owned by respondent Felisa Manese, with an option to purchase. The contract was amended to name Unicane as the lessee. Unicane faithfully paid rentals and, in 1987, paid an advance for an alleged verbal agreement with Felisa to extend the lease until 1997. However, in 1978, Felisa had executed a Deed of Absolute Sale over the property in favor of her daughters, respondents Lutgarda and Ciceron Manese, for P15,000.00, to help them with financial difficulties, with an understanding the property would be returned later. The sale was registered only in 1988. The daughters later mortgaged the property. Unicane discovered the sale and demanded to exercise its option to buy at the same price, but was refused. The daughters also informed Unicane they would not honor any lease extension beyond 1990.
Unicane filed a complaint for annulment of the deed of sale, enforcement of the lease extension, and specific performance of its option to buy. The Regional Trial Court ruled in favor of Unicane, nullifying the sale, recognizing the lease extension until 1997, and ordering Felisa to sell the property to Unicane for P15,000.00. The Court of Appeals reversed this decision, dismissing Unicane’s complaint. It found the lease was not validly extended and the sale between Felisa and her daughters was a simulated contract, thus not violating Unicane’s option to buy. Unicane elevated the case to the Supreme Court via petition for review.

ISSUE

The core issues were: (1) whether the lease contract was validly extended to 1997; and (2) whether the Deed of Absolute Sale between Felisa Manese and her daughters was valid and binding, thereby affecting Unicane’s option to purchase.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision. On the first issue, the Court held no valid extension of the lease was perfected. The alleged verbal agreement and advance payment in 1987 did not create an implied new lease under Article 1670 of the Civil Code, which requires the lessor’s acquiescence to the lessee’s continued enjoyment and the absence of any notice to the contrary. Here, the lessor’s daughters, as successors-in-interest, expressly notified Unicane they would not extend the lease beyond 1990. Furthermore, Felisa Manese herself testified she was unaware of the contents of the receipts she signed for the advance payment. Thus, Unicane was put on notice of the lessor’s contrary intent, negating any implied renewal.
On the second issue, the Court upheld the finding that the 1978 sale was an absolutely simulated contract, void from the beginning. The evidence showed no actual payment of the P15,000.00 consideration by the daughters to Felisa. The transaction was merely a scheme to allow the daughters to use the property as collateral for a bank loan, with a mutual understanding that ownership would revert to Felisa. Since a simulated sale produces no legal effect, it did not constitute a valid sale that could trigger or violate Unicane’s preferential right to purchase under the lease. Consequently, with the original lease expiring in 1990 and no valid extension, Unicane’s option