G.R. No. 157480 ; May 6, 2005
PRYCE CORPORATION (formerly PRYCE PROPERTIES CORPORATION), petitioner, vs. PHILIPPINE AMUSEMENT AND GAMING CORPORATION, respondent.

FACTS

Pryce Corporation (PPC) and the Philippine Amusement and Gaming Corporation (PAGCOR) executed a three-year Contract of Lease for a casino in Cagayan de Oro City. After execution, the local Sangguniang Panlungsod passed ordinances prohibiting casino operations. This led to public rallies and barricades, forcing PAGCOR to suspend operations. PPC and PAGCOR successfully challenged the ordinances before the courts, which declared them unconstitutional. However, upon verbal advice from the Office of the President, PAGCOR decided to permanently cease operations and formally notified PPC of the contract’s termination pursuant to a specific provision in the lease agreement.
PPC filed a complaint for damages, arguing the termination was invalid and amounted to a rescission, thus entitling it to unrealized rentals for the entire lease term. PAGCOR countered that it validly exercised a contractual right to terminate due to force majeure—the hostile public sentiment and executive advice rendering continued operation impossible. The trial court ruled for PPC, but the Court of Appeals modified the decision, recognizing PAGCOR’s valid termination and ordering mutual restitution of accrued rentals and deposits.

ISSUE

Whether PAGCOR’s cessation of operations and notification constituted a valid termination of the contract or an invalid rescission, thereby determining the parties’ rights and obligations.

RULING

The Supreme Court affirmed the Court of Appeals, holding that PAGCOR validly terminated the contract. The Court drew a crucial distinction: termination ends a contract prospectively due to causes like breach or force majeure, and the contract is deemed valid up to that point. Rescission, conversely, voids the contract ab initio due to a vice of consent, requiring mutual restitution to the status quo ante. Here, the lease contract itself contained a provision allowing either party to terminate upon the occurrence of an event making continued operation impossible, which included force majeure.
The hostile public opposition, validated by the direct advice from the Office of the President, constituted a valid force majeure event that rendered PAGCOR’s casino operations untenable. By invoking the specific termination clause, PAGCOR did not rescind the contract but properly ended it. Consequently, the contract was binding only until the effective date of termination. PPC was not entitled to unrealized future profits, as its claim was premised on the erroneous concept of rescission. The parties’ obligations were limited to those accrued prior to termination, justifying the appellate court’s order for the offsetting of mutual monetary claims. The Court emphasized that it cannot remake contracts for parties, and the agreed termination clause, being lawful, must be respected.